Hello, CNMI. I’m a new columnist for the Saipan Tribune. I’m also a lawyer specializing in business and real-estate law who has worked for the Supreme Court, Bridge Capital, and now several real estate companies, including Joint Marketing. Over the coming months, this column will tackle a variety of business and real estate topics, mostly from a legal angle.
Now let’s get started: Four things to do before buying property to prevent unhappy discoveries after it becomes yours.
First, figure out who actually owns the property. This sounds obvious but people occasionally buy property from people who don’t actually own the property.
In some cases, a seller mistakenly believes that they own the property. For example, a family might agree on how to distribute property after a loved one passed away without going through the probate process. And then later memories change, leaving ownership disputed.
In less-innocent cases, the seller is conning a buyer. They tell you that the property has been in their family for years; they may even cry over the idea of parting with it. But they assure you that if you pay right away, they will let it go.
The easiest and safest way to find out whether the seller actually owns the property is to obtain a preliminary title report. A PTR is not a government document; instead, it is a report issued by a title-insurance company describing the chain of ownership from the first owner to the current owner. It will also say if the property has been leased and whether there are any mortgages or other liens on the property.
On Saipan, two companies currently issue PTRs: Security Title and Pacific American Title. The first is located on Capital Hill; the second is in Susupe. They normally issue a PTR within one to three weeks but will expedite the process for an extra fee.
While verifying ownership, the next safeguard is to double-check the property’s boundaries. Just because a seller claims that a property has certain boundaries doesn’t make it so.
Take a common example. Let’s say a father owns a big chunk of land and then passes away, leaving five children. Following probate, each child gets one-fifth of the land. Over 20 years, each uses the land with little thought about the formal boundaries of each property. Later, one of the children sells their piece to someone outside the family. What happens next? That’s right: Disagreements about where one property ends and the other begins.
Or consider another surprisingly frequent event. An investor sees a building. They like it. They can see themselves rolling in the revenue. All they need to do is buy the building, renovate it, and then rent it out. But as they start renovating, they discover one of the building’s walls is actually built on a neighboring lot. And knocking down the encroaching wall would destroy the building or, at least, dramatically increase the cost of renovating. Much better to find that out before buying the building.
So, how does a careful buyer prevent boundary problems from transforming their investment into a nightmare? Get a boundary survey from a seasoned surveyor. Doing so will confirm access points and boundary lines as well as identifying any encroachments.
Moving to the third due-diligence task, make sure that you can use the property for the purpose you intend. You may not be able to. That is because Saipan has a zoning law establishing how different areas of the island can be used. For example, if a part of the island has been designated as a residential area, then it generally cannot be used for a non-residential purpose like a hotel, a hospital, or a factory—although occasionally the zoning board or the Legislature may grant an exception.
Other zoning restrictions may also apply. The zoning law is long and detailed with many technical requirements stretching from how far to set back buildings from roads, boundaries, and high watermarks to how much parking is needed to how much of a storefront window can be used for advertisements.
The fourth due-diligence task is perhaps the most overlooked: Investigate whether the property has any environmental issues. For instance, is there a wetland on the property? If so, CNMI law strongly restricts and sometimes flatly prohibits development. Is the property in a floodplain? Again, development restrictions may apply (on top of all the other issues that apply to building in a flood-prone location). Are there any endangered animals on the property? If so, you will need to reach into your wallet to pay remediation costs. You may also need to halt your project until the issue has been addressed, a process that can take half a year or more.
Bottom line: Many traps are lurking for the investor who buys property too fast, including many not discussed here. To minimize the chance of springing a nasty trap, it’s important to do your homework before handing over your hard-earned money. Waiting until afterwards is too late.