Buying and Selling Waterfront Property in Michigan

Transcription

1 Buying and Selling Waterfront Property in Michigan * * * 2012 Cottage & Lake Living Show Clifford H. Bloom Attorney-at-Law LAW WEATHERS 800 Bridgewater Place 333 Bridge Street, N.W. Grand Rapids, Michigan (616) cbloom@lawweathers.com

2 CLIFFORD H. BLOOM, ESQ. Grand Rapids attorney Cliff Bloom is one of the foremost experts on water and riparian law in Michigan. In addition to his regular column in the Michigan Riparian Magazine, Cliff is also legal counsel for the Michigan Lake & Stream Associations, Inc. ( ML&SA ), as well as co-counsel for the Michigan Waterfront Alliance. Over the years, Cliff Bloom has represented dozens of lake associations and other property owner groups throughout Michigan. He has lectured on riparian and water law issues statewide, not only for the ML&SA, but also for the Michigan Townships Association and other groups. He has written extensively about lakes, water/riparian law and related issues. Many of his articles can be found at or Cliff Bloom is also the author of the new book entitled Buying and Selling Waterfront Property in Michigan, published by ML&SA. See Exhibit A. In addition, a few years ago, he authored the publication entitled Michigan Lake Associations The Nuts and Bolts. * * * I. An Important Definition. Riparian A lot or parcel of land which touches a lake, river, stream or creek. In order to be riparian or waterfront, the property must touch or have frontage on such a body of water. See Thompson v Enz, 379 Mich 667 (1953); Hall v Wantz, 336 Mich 112 (1953); Thies v Howland, 424 Mich 282 (1985). II. Use a system when purchasing lakefront property in Michigan. A. Do not buy waterfront property on impulse! B. There are many more potential pitfalls associated with buying waterfront property than other property in Michigan

3 III. The new book Buying and Selling Waterfront Property in Michigan greatly assists prospective purchasers of waterfront property. An order form is attached as Exhibit A. IV. The first step choosing what type of waterfront property you desire. A. Decide for certain whether you are interested in property on a: Great Lake Inland lake River Creek or stream B. Decide what geographical area of the state is your priority. V. Determine your price range and affordability. VI. Locating the right waterfront property. A. Many prospective waterfront property purchasers hire a buyers broker (either a realtor or a real estate agent). B. Check the multi-state listings. C. Internet searches. D. Word of mouth. VII. The all important Purchase/Sales Agreement. A. This is a formal document that a prospective purchaser uses when making an offer to buy real estate. B. Do not sign a Purchase/Sales Agreement unless you not only agree with all of its provisions, and also insert any other necessary clauses. C. Once signed by both parties, the Purchase/Sales Agreement is fully binding. It is not just an unenforceable letter of intent. It cannot be changed without the written consent of both parties. D. It is normally prudent to consult with a skilled real estate attorney before signing a Purchase/Sales Agreement. E. Common provisions contained in a good Purchase/Sales Agreement: Preface/introduction - 2 -

4 Purchase price Legal description for the property Seller s name and address Buyer s name and address Financing contingencies Earnest money/deposit Escrow issues Fixtures and items that go with the sale Land division issues and split rights Type or quality of title to be given Warranties or AS-IS clause Remedies against default Title insurance Closing costs, and who pays what Property tax proration Proration of other items (water bill, sewer bill, association dues, etc.) Contingency about flood insurance General inspections (dwelling, environmental, etc.) Out clauses for the buyer (can cancel if not satisfied) Inspections/investigation contingency for buildability Miscellaneous contingencies Dwelling inspections (dwelling, environmental radon, lead paint, etc.) Survey Real estate transfer taxes Broker fees/allocations Possession/occupancy Closing Closing date Place of closing Seller s disclosure statement (if a dwelling) Lead paint disclosure - 3 -

5 Private road disclosure Type of deed or land contract Arbitration clause Sale of existing dwelling contingency Remedies upon breach or default Notices Interpretation/construction clauses VIII. Purchaser s Due Diligence. A. Due diligence can be defined as proceeding with caution, the care exercised by a person who seeks to satisfy a legal requirement, or a prospective buyer s investigation and analysis of a piece of property before finally purchasing the same. Or put another way, due diligence is a diligent and careful investigative process. B. There typically are two due diligence periods that a purchaser should be aware of doing one s homework before the Purchase/Sales Agreement is signed and all the work that a prospective purchaser must do between the time that the Purchase/Sales Agreement is signed and the closing occurs. IX. The pre-purchase/sales Agreement due diligence time period. Retain the assistance of a qualified realtor, real estate agent, real estate broker, and/or real estate attorney. Negotiate all terms and phrases within the proposed Purchase/Sales Agreement (and make certain that you understand them). Also, make sure that the final written agreement accurately reflects what has been agreed to. Insert all desired contingency clauses into the Purchase/Sales Agreement. Investigate all matters to your satisfaction that will not be subject to a contingency clause in the Purchase/Sales Agreement. Satisfy yourself that you can secure proper financing. X. The due diligence period between the Purchase/Sales Agreement and closing. A. The time period between the signing of the Purchase/Sales Agreement and the closing is extremely important. There is normally a lot of work to be done by the purchaser during this time period. B. A general checklist: Attempt to satisfy all contingencies - 4 -

6 Firm up the financing Have any inspections or reports done Have your attorney review the title insurance commitment Make sure all documents are ready for closing Ensure that the appraisal is done (where applicable) Make sure you are satisfied with the survey (where applicable) Verify that flood insurance can be obtained at what cost (if applicable) Miscellaneous contingencies XI. The closing. A. What is a closing? B. A checklist for closing: 1. Purchase funds (cashier s check, certified check, or wire transfer). 2. Financing documents: 3. Mortgage. 4. Land Contract. 5. Seller s closing statement. 6. Buyer s closing statement. 7. Recording fee. 8. State real estate transfer tax. 9. County real estate transfer tax. 10. Proration of property taxes. 11. Proof of identification (usually a driver s license). 12. Real estate transfer affidavit. 13. Homestead exemption form. 14. Estoppel certificate/affidavit

7 15. Contingencies met/satisfied acknowledgement. 16. Decide possession date and details. 17. The deed or land contract. 18. HUD forms. 19. Miscellaneous title insurance company forms. 20. Bill of sale (for personal property or non-real estate items). 21. Private road disclosure form. XII. Ten valuable tips to a prospective waterfront purchaser. A. Use a good real estate/water law attorney. B. Do your homework and perform due diligence. C. Do not assume anything. D. Make sure the Purchase/Sales Agreement is right before signing. E. Use inspectors. F. Surveys are important G. Have your financing lined up beforehand. H. Don t make any assumptions regarding the local zoning or other ordinances. I. Talk to everyone! J. Buy and read (or re-read) the new book Buying and Selling Waterfront Property in Michigan! XIII. Insurance for the waterfront. A. The liabilities are potentially higher than for non-waterfront property. B. At a minimum, you should have $1,000,000 liability insurance coverage. C. Make sure all aspects of the property and waterfront are covered by the insurance. XIV. Lake access devices and areas. A. Find out if there are any nearby

8 B. They can cause severe problems. C. In some cases, you should walk away from a waterfront property which has a private or public access on the property or nearby. XV. Property Owners Associations. A. Lake 1. Strong 2. Weak B. Condominiums XVI. Deed Restrictions. XVII. Additional Resources. A. Not every topic can possibly be covered by this type of seminar. B. The Michigan Riparian Magazine Its website can be found at and the mailing address for The Michigan Riparian is as follows: The Michigan Riparian Magazine 304 E. Main Street Stanton, Michigan (989) The annual subscription rate is $14.00 for four issues. C. The Michigan Lake & Stream Associations, Inc. Please visit this organization s website at D. Cliff Bloom s riparian webpage at E. See the article attached as Exhibit B

9 EXHIBIT A A-1

10 EXHIBIT B ATTORNEY WRITES By Clifford H. Bloom, Esq. Law Weathers Winter, 2012 Buying and Selling Waterfront Property The Pitfalls Isn t buying or selling waterfront property the same as similar transactions for nonwaterfront properties? No! There are many legal and practical differences for transactions involving waterfront properties than conventional properties. Perhaps the most important component of any real estate transaction is the sale/purchase agreement. That document (signed by both the buyer and seller) sets all of the important matters for the ensuing real estate transaction. While some inexperienced buyers and sellers view the document as simply a preliminary informal agreement or something akin to a letter of intent, it is not. A signed sale/purchase agreement is fully binding, usually contains all of the important terms of the real estate transaction and cannot be changed or varied unless consented to by both parties in writing. Accordingly, if you are a prospective purchaser, it is important to make sure that every major issue is addressed in the sale/purchase agreement including any contingencies or outs. Some of the major clauses in a sale/purchase agreement for waterfront property include the following: Purchase price Property legal description and address Financing contingencies Earnest money/deposit Fixtures and items that are included in the sale Type or quality of title to be given Warranties or as-is clause Remedies upon default Title insurance Closing costs and who pays what Property tax proration Proration of other items Inspection clauses Contingency/cancelation clauses Survey B-1

11 Real estate transfer taxes Broker fees Closing date Seller s disclosure statement (if a dwelling is involved) Private road disclosure Type of deed or land contract Arbitration clause Notices If a prospective purchaser is considering buying a waterfront property, it is essential to determine whether in fact the property is true waterfront property and if so, the extent of the rights associated with that property. Many properties that are advertised as waterfront property turn out not to be or the property s riparian rights could be very limited. An off-lake or off-water property is not riparian a lot or parcel must actually have frontage on a body of water to be riparian. Furthermore, any water usage rights for an off-lake or back lot property is almost always extremely limited. Typically, any lake access rights involve access only (that is, travel), with no rights to have a dock, moor a boat or even lounge or sunbathe. It is also fairly common for a purported waterfront property to actually not run to the water itself ( land gaps are quite common) or to have an easement, walkway, road or other recorded interest run along the waterfront. Quite often, it will take a skilled real estate attorney to advise the purchaser whether the property at issue is truly waterfront and if so, whether there are any restrictions or limitations. Some of the other matters that a prospective purchaser should familiarize himself or herself with before making a binding decision regarding purchasing a waterfront property include the following: 1. Are there any deed restrictions that limit use? 2. How much waterfront does the lot actually have? 3. Is there a voluntary or mandatory property owners association? 4. What will the property taxes be after the transaction? 5. Are there any lake access easements, private or public road right-of-ways, public or private walkways or similar items that bind the property or are located nearby? B-2

12 6. Is the property subject to any special assessments for aquatic weed controls, municipal services, or other matters? 7. Are there any local municipal, zoning or other ordinance requirements that would impact buildability, dockage, the number of boats allowed, etc.? 8. Has a recent survey been done for the property? 9. Are there any negative uses nearby (for example, an expressway, prison, airport, or landfill) or are there nearby properties that could be heavily developed later? 10. Is the body of water healthy or degraded? 11. What are the bottomlands of the property like? 12. Are there chronic disputes in the neighborhood? It is simply not prudent for a prospective buyer or seller of waterfront property to assume that the closing transaction will be the same as with any other piece of property. Where a waterfront property is involved, it is normally wise to utilize an attorney who is skilled in the area. * * * A recently released book that I authored for the Michigan Lakes & Streams, Inc., Buying and Selling Waterfront Property in Michigan, delves into waterfront property real estate transactions in much more detail than this article. An order form for this new book can be found at (001) B-3