What happens if a seller’s fence encroaches on a neighbor’s property?

QUESTION: I represent a seller. The buyers did not obtain a survey during their due diligence period. However, prior to closing, they obtained a survey that revealed that a  portion of a fence installed by the seller actually encroaches on a neighbor’s property. The buyers are demanding that the seller move the fence. Is that something the seller  needs to do?

ANSWER: We believe that the encroachment of the fence would cause the title to both of the properties to be considered unmarketable. Therefore, we would suggest that the  seller move or remove the encroaching portion of the fence to avoid being considered in breach of the contract of sale.

One of the seller’s obligations under the Offer to Purchase and Contract (see paragraph 8 in form 2-T) is to deliver a General Warranty Deed to the property which shall  convey fee simple marketable and insurable title, free and clear of any liens, encumbrances or defects, including those which would be revealed by a current and accurate  survey of the property.

If the issue was a neighbor’s fence or a neighbor’s garage that was encroaching on the property being sold, no one would question that the fence or the garage constitutes a  defect or encumbrance that affects the marketability of the title. Such a defect would clearly have to be removed before the buyer would have an obligation to proceed with  the closing.

An encroachment onto a neighbor’s property is a violation of that neighbor’s property rights (a trespass). That type of violation has been considered an actionable  encumbrance which renders the title to the property unmarketable. As such, the seller has an obligation to rectify the situation. Under paragraph 8 of the Offer to Purchase  and Contract, a seller’s failure to rectify such a title defect would give the buyer the right to terminate the Contract and receive a refund of both the Earnest Money Deposit  and the Due Diligence Fee along with reimbursement of the buyer’s reasonable costs incurred in the due diligence process.

The buyer’s right to terminate the contract if the encroachment is not rectified is not lost just because the buyer waited until after the due diligence period to obtain a survey. A  note in paragraph 8(g) states as follows: ” Buyer’s failure to conduct a survey or examine title of the Property, prior to the expiration of the Due Diligence Period does not  relieve the Seller of their obligation to deliver good title under this paragraph. “

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