10 Common Legal Issues in Real Estate Transactions & How to Avoid Them

Michael C. Davis, Partner at Nowlan Law 

When buying or selling real property, problems can arise at any time, even after closing. It is crucial to understand these issues, how to avoid them, and how to address them when they do arise. 

At Nowlan Law, our Real Estate attorneys can help you identify concerns and create a plan of action. Our goal is to help you protect your interests and complete your real estate transaction.

1. Title Defects

Unknown liens, unpaid property taxes, ownership disputes, or errors in public records, like misspelled names or incorrect legal descriptions, and undischarged mortgages or judgments can cloud the title. Title defects can cause serious issues with closing and lead to delays. Sellers must resolve these defects to complete the sale. 

How to Avoid Title Defects 

Buyers should always obtain a professional title search before closing. Depending on the issue, sellers should pay off outstanding debts or liens, obtain a quitclaim deed from an heir or prior co-owner, file a correction deed, or pursue legal action to clear the title.

2. Contract Disputes

Poorly written or overly vague purchase agreements can lead to misunderstandings about essential terms. Disputes may arise if either party believes the other has breached the contract or failed to meet obligations. Disputes over the closing date, financing contingencies, inspection timelines, or what fixtures are included in the sale are among the most common and can delay closing or result in legal action. 

How to Avoid Contract Disputes 

A clearly written, comprehensive purchase agreement that outlines all key terms and deadlines can help to avoid contract disputes. Buyers and sellers should have the contract reviewed by a qualified Real Estate attorney to make sure it complies with state law and adequately protects their interests.

3. Zoning and Land Use Violations

A property may not be zoned for the buyer’s intended use. For example, in Janesville, a home-based business must be operated within the primary residence, and not an accessory building like a detached garage. 

Violations can also occur when existing structures or improvements, such as fences or additions, were built without proper permits or don’t meet local zoning ordinances. These issues can delay occupancy, trigger fines, or require costly modifications. 

How to Avoid Zoning and Land Use Violations 

Before purchasing, buyers should review local zoning maps, ordinances, and future land use plans to confirm the property’s permitted uses and review options for zoning variances or a conditional use permit. If existing improvements are involved, request documentation showing that permits were issued and final inspections were completed.

4. Undisclosed Property Defects

The seller may not always disclose structural problems, water damage, mold, pest infestations, or environmental hazards like lead paint or asbestos. If these issues are discovered after the sale, the buyer may face expensive repairs and may need to take legal action for their damages. 

How to Avoid Undisclosed Property Defects 

In Wisconsin, sellers must disclose all known defects using a Real Estate Condition Report (RECR). This report must be provided within 10 days of the buyer accepting the purchase contract. In addition, buyers should schedule a comprehensive home inspection with a trusted and knowledgeable inspector.

5. Financing Issues

Loan denials, last-minute delays, or changes in the buyer’s financial situation, such as a job loss, new debt, or credit score drop, can cause sales to fall through. Even after a pre-approval, the lender will verify income and credit before closing. Appraisals below purchase price can also disrupt financing and leave buyers scrambling to cover the difference. 

How to Avoid Financing Issues 

Buyers should obtain mortgage pre-approval before making an offer to show financial readiness. Once under contract, they should avoid major purchases or credit changes that could affect their loan eligibility and include a financing contingency in the purchase agreement to protect against unexpected loan denials or appraisal gaps.

6. Boundary and Survey Disputes

Disputes over property lines, shared driveways, fences, or encroachments can create costly legal issues. Unrecorded easements, such as rights of way or utility access, may also restrict how the property can be used. These issues often arise after the sale when a neighbor raises concerns, or the buyer begins improvements and discovers the boundaries are not where expected. 

How to Avoid Boundary and Survey Disputes 

Buyers who are concerned about potential boundary or survey disputes can consider obtaining an up-to-date survey of the property.  A survey will identify the exact property lines and any encroachments. Recorded easements will also be included on the title and can be found during the title search. Sellers should disclose known boundary issues up front to avoid legal disputes after transfer.

7. Failure to Disclose Environmental Hazards

The presence of environmental hazards such as lead-based paint, radon, asbestos, mold, or contaminated soil can pose serious health risks and lead to expensive remediation. If a seller fails to disclose known issues, buyers may face legal battles or regulatory enforcement after the sale. 

How to Avoid a Failure to Disclose Environmental Hazards 

Buyers should be especially cautious when purchasing older homes, rural properties, or former industrial sites. Ordering appropriate environmental testing, such as radon tests, mold inspections, or an environmental site assessment for commercial properties, can help identify hidden hazards. Sellers should comply with all legal disclosure obligations and document any past testing or remediation efforts to reduce liability.

8. Breach of Contract

When one party fails to fulfill their obligations under the purchase agreement, such as missing deadlines, failing to deliver the required documents, or backing out without cause, it constitutes a breach of contract. These breaches can delay the transaction, result in financial losses, or even lead to legal disputes. 

How to Avoid Breaches of Contract 

The agreement should be drafted with specific performance clauses that clearly define obligations, deadlines, and remedies in the event of a breach, such as penalties or legal consequences for non-compliance. Experienced legal counsel, like the attorneys at Nowlan Law, can help you draft real estate agreements that are enforceable and understood by all parties.

9. Fraud or Misrepresentation

Fraud or misrepresentation occurs when a party intentionally provides false information about the property, such as concealing defects, inflating income figures for investment properties, or misrepresenting legal ownership. This can lead to legal action, financial loss, and nullification of the sale. 

How to Avoid Fraud or Misrepresentation in a Transaction 

Buyers should conduct thorough, independent due diligence, including property inspections, financial audits, and public record reviews. They should also work with licensed, reputable agents and trusted Real Estate Attorneys who can identify red flags and verify claims made during the transaction. Sellers should take care in their representations and act with honesty and integrity.

10. Problems with Closing and Deed Recording

Issues like delays in closing, errors in deed preparation, or mistakes in the recording process can create serious complications during a real estate transaction, potentially leading to ownership disputes or delayed transfer of title. These problems often result from miscommunication, clerical errors, or incomplete paperwork. 

How to Avoid Problems With Closing and Deed Recording 

Parties should take care to provide all necessary documentation, communicate with their agent, each other, the title company, and their attorney. Attention to detail is key to avoiding these issues. A knowledgeable attorney and a reliable title company can assist with the final stages of the transaction, making sure that documents are accurate, complete, and filed correctly, reducing the risk of delays or post-closing legal issues. 

Contact a Real Estate Attorney at Nowlan Law 

Buying or selling property can be a veritable minefield, whether it is legal errors, financial mistakes, or less-than-honest buyers or sellers, serious issues can arise. Our trusted Real Estate attorneys provide support and guidance, advocating for your interests through every stage of your transaction.

Avoid costly mistakes before they happen. If you’re buying, selling, or investing in real estate, our team is here to help you navigate every step with confidence. Contact us today to discuss your situation.