In a recent decision, the Virginia Supreme Court reiterated the importance of using due diligence and carefully examining the title when purchasing property. Washington v. Prasad, 791 S.E.2d 566 (Va. 2016), involved a suit by a purchaser against his neighbors to recover the funds the purchaser expended as a result of erroneously improving his neighbors' property instead of his own.
After receiving notice of a public action, the purchaser, a retired chemical engineer turned house "flipper" accessed the County assessor's records and reviewed the property card for the Parcel 8-C, the parcel being auctioned. The property card correctly listed the street address as 17211 Shands Road, but incorrectly showed a picture of the neighbors' home, Parcel 9-A. The reason for the mix-up was that the neighbors' house on Parcel 9-A had previously been numbered as 17211, but the street number changed to 17201 years ago. However, the neighbors never changed the number at the front of the house or on the mailbox, thus, the neighbors' property appeared to be 17211 Shands Road to passers-by.
At the auction, the purchaser purchased Parcel 8-C for $11,000 and soon mistakenly began renovating the neighbors' vacant house. After spending more than $23,500 in renovation costs, the purchaser received a letter from the neighbors' attorney directing him to vacate the premises. All of the work done was without the neighbors' knowledge or approval, and the neighbors refused to pay the purchaser for the work he did on their home.
The purchaser filed suit against the neighbors, asking the circuit court to impose a constructive trust on the lot and to effect its sale based on the neighbors' alleged "unjust enrichment" as a result of their fraud through misrepresenting the address of the house. The purchaser also sought an award of the amount he expended on renovations based on an implied contract in law theory. The circuit court imposed a constructive trust on the neighbors' lot in favor of the purchaser with a money judgment and lien in the amount that he expended on the house.
The neighbors appealed, and the Virginia Supreme Court ruled in their favor, reversing the circuit court. The Virginia Supreme Court reasoned that a purchaser "is bound, not only by actual, but also by constructive notice, which is the same in its effect as actual notice," id. at 569, and, thus, "[h]e must look to the title papers under which he buys, and is charged with notice of all the facts appearing upon their face, or to the knowledge of which anything there appearing will conduct him. He has no right to shut his eyes or his ears to the inlet of information, and then say he is a bona fide purchaser without notice," id. at 569-70 (quoting Burwell v. Fauber, 62 Va. (21 Gratt.) 446, 464 (1871)). The Virginia Supreme Court noted its consistent holding that "a person with notice, actual or constructive, of a defect in his title is not entitled, upon being dispossessed by the rightful owner, to recover compensation for permanent improvements made on the premises."
Accordingly, the court determined that "[i]t was [the purchaser]'s failure to exercise due diligence in his purchase of Parcel 8-C that resulted in his misidentification of Parcel 9-A as the property he was purchasing." Id. at 570. Because a proper review of the purchaser's tax map or the plat in his chain of title, of which he had constructive notice, would have shown the proper locations of the properties, the purchaser was not entitled to recover. By choosing to forgo conducting a thorough review of the title, the purchaser proceeded "at his peril."
The Virginia Supreme Court's holding in this case drives home the importance of conducting a thorough title review before purchasing property. Even the fact that the property card in the county assessor's records depicted the incorrect house did not excuse the purchaser's lack of due diligence in examining the tax map and related documents himself. The moral of the story is simple: purchasers always need to carefully review their titles. And, buying title insurance surely would not hurt.