It’s Not Easy to Fix an Error in a Deed

Every once in a while we run across a client who asks us to draft their real estate purchase and sale agreement, but then opts to go it alone when it comes time to close the deal. The recent case of Lee v. Willow Creek Ranch Estates No. 2 HOA, No. 45390 (Idaho Nov. 28, 2018), serves as a good reminder of why that might not be the best strategy.

In Lee, the purchase and sale agreement contemplated that the seller would keep an easement over the property being sold for road access to other property the seller kept. Unfortunately, the deed delivered at closing failed to mention the new easement. After closing, the buyer installed the private road on the sold property and extended it all the way to the boundary with the seller’s retained property, but then conveyed the land under the road to a homeowner’s association (HOA). Later, the HOA objected to the seller using the road. The seller sued the HOA seeking to correct the problem.

If you think the lack of a written easement would be an easy mistake to fix, given that the issue was addressed in the purchase and sale agreement and the road was actually built, you would be wrong. The Lee case reminds us that, under the legal doctrine of “merger,” the court will not go back to the purchase and sale agreement to contradict the deed. Essentially, the law assumes the parties to a real estate sale contract know what they are doing when they draft the deed, even if the parties leave the deed drafting up to an escrow agent who just grabs a “standard” form.

The court quoted a 1966 Idaho case summarizing the merger doctrine:

When a deed is delivered and accepted as performance of the contract to convey, the contract is merged in the deed. Though the terms of the deed may vary from those contained in the contract, the deed alone must be looked to to determine the rights of the parties.

. . . Where the right claimed under the contract would vary, change, or alter the agreement in the deed itself, or inheres in the very subject-matter with which the deed deals, a prior contract covering the same subject-matter cannot be shown as against the provisions of the deed.

In Lee, the deed said it was subject to all easements of record, but it didn’t say anything about the new easement that the parties wanted to create at closing, as spelled out in their purchase and sale agreement. Based on the doctrine of merger, the Idaho Supreme Court said the seller was out of luck. Worse than that, the court ordered the seller to pay the HOA’s attorney fees, both at trial and on appeal. So, here we have another very expensive lesson in real estate law, available to the rest of us free of charge.