Survey Surprises: Encroachments, an Easement, and Three Different Lot Areas
You are appraising a 0.41-acre parcel in an older subdivision for a refinance. The deed describes the property as Lot 14, Block 3, Maple Ridge, per plat recorded in 1968. The lender's instructions say 'appraise subject to clear title.' A new ALTA survey shows that the detached garage, built in 1998, encroaches 1.8 feet onto Lot 15, and the neighbor's rear fence encroaches 0.9 feet onto the subject. A 20-foot sanitary sewer easement, recorded in 1972, runs diagonally across the rear third of the lot; it is not shown on the plat. The deed area is 0.41 acre, the plat area is 0.38 acre, and the assessor shows 0.45 acre. The borrower says the neighbor 'is fine with the garage' and asks you not to mention the survey because 'it will just slow the loan.' The title commitment lists the sewer easement but excepts 'encroachments not of record.'
1. How should the garage encroachment, the fence encroachment, and the sewer easement be treated? Distinguish hypothetical condition and extraordinary assumption.
Read the worked answer
All three items are relevant to value and marketability and cannot be omitted at the borrower's request. The garage encroachment is an improvement on the neighbor's land; it may create a title claim, a prescriptive easement, or a need for a lot line adjustment or encroachment agreement. The fence encroachment is a neighboring improvement on the subject's land; it may give the neighbor a claim and limit the subject's use. The sewer easement is a recorded encumbrance that limits construction over the rear third and may affect expansion or HBU. I would describe each, analyze the likely market reaction, and recommend that the client obtain legal and title review. An extraordinary assumption would be used if I assume, without verification, that the neighbor's consent or an encroachment agreement exists. A hypothetical condition would be used if I am asked to value the property as though the encroachments did not exist or as though title were clear. I would avoid a hypothetical condition that hides a known problem unless the client specifically needs it and it is clearly disclosed.
2. How should the three area figures be reconciled, and what should be reported?
Read the worked answer
The survey is the best evidence of the physical boundaries and area; the deed and plat provide the legal description; the assessor's figure is for assessment purposes and is not authoritative. I would report the survey area, note the deed area and plat area, and explain the discrepancy rather than averaging or choosing the largest. If the legal description and survey conflict, I would recommend a boundary survey or legal review. The appraisal should describe the property by the legal description and the survey, and should state which area was used for the analysis. The assessor's 0.45 acre should not be used to support value. The differences may be due to a plat versus deed description, rounding, or a prior conveyance; the appraiser should not resolve a legal boundary question.
3. What should be communicated to the borrower and lender, and how does 'subject to clear title' affect the assignment?
Read the worked answer
The borrower is not my client; the lender is. I cannot misrepresent or omit known material facts because the borrower asks me to. I would tell the borrower that the survey issues must be addressed in the report and that I cannot give legal advice. To the lender, I would report the encroachments and easement, explain their potential effect, and recommend title and legal review before closing. The instruction 'appraise subject to clear title' is a scope condition. I can appraise subject to clear title, but I must disclose known title-related issues. If the known encroachments mean title is not clear, I would either make a clearly disclosed hypothetical condition that title is clear or appraise as-is with the encumbrances and state the assumption. I would not silently ignore the survey. The report should also state that the appraiser is not a title attorney and that the title company's exceptions control.