Each real estate transaction is unique, and numerous variables can influence a closing. Typically, title issues are one of these items.
Typically, resolving title defects such as an unpaid lien is straightforward. However, not all title issues are obvious or easily resolved, especially if you are purchasing a foreclosed home.
Working with the right title company will allow you to navigate these obstacles more effectively and close deals more quickly.
Why Professional Title Searches Are Important
Your mortgage lender will require a title search if you are financing a transaction with them. There is an option to waive it if you are paying cash, but skipping the title search is a gamble that may not pay off. Problems with a property can extend beyond the obvious, such as a deteriorating roof or a crack in the foundation.
A professional title search clarifies who can sell you the property, what you are purchasing, and how the property may be used. Once the search is complete, the title company obtains a title commitment outlining what title issues will be resolved or “cured” prior to closing (requirements), what potential undiscovered issues will be insured, and the exclusions or limitations for insurance.
Particularly distressed properties are likely to have additional issues that must be uncovered through a public record search. To prevent financial losses and avoid falling into a money pit, you should always consult with a title company or an attorney to ensure that these issues are properly resolved.
What elements can delay a real estate transaction?
Before a lender or owner can be issued a title insurance policy, a title search must be conducted, and a title agent or attorney must work to resolve any issues.
Common title issues discovered prior to closing may include:
Errors in chain of title documents
Errors in the Title Document Chain
A title search will reveal who owns the property, how the title is held, and whether or not any other parties have an interest in the property.
Three essential documents reveal who owns the property or has an interest in it:
1. Vesting deed
3. Mortgage transfers
The vesting deed is an essential document for identifying the current owner, whereas mortgages and mortgage assignments indicate which lender holds the outstanding debt on a home loan.
Vesting Deed Errors
Before finalizing the transaction, a corrective deed would likely need to be drafted and recorded due to these simple errors.
Additionally, a new deed must be drafted and recorded in order to remove deceased parties from the title. A spouse or partner may assume that they have the right of survivorship and that the title will pass to them automatically, but this is not always the case. Before a deceased owner’s property can be sold, probate may be required to determine who will assume control of the property. If the deceased owner left a will, the transaction will likely be put on hold until the administration of the estate is complete.
If the seller is divorced and the former spouse’s name remains on the deed, both parties may be required to sign a quitclaim deed or other type of deed as required by the state.
A title company or attorney will search for these issues, work with the appropriate parties to draft and record corrective deeds and ensure that the proper procedures are followed to ensure the transfer of a clean title at closing.
Missing Mortgage Transfers
Mortgages are recorded documents that indicate which lender is responsible for a home loan’s debt. A mortgage assignment is recorded if the original lender decides to legally transfer their interest in a property to a new lender. Additionally, an endorsement of the promissory note is signed over to the new loan owner.
The majority of the mortgage industry uses the MERS system to track these documents.
Although the mortgage assignment must be recorded in the public record, this is not always the case. In such situations, your title company will ensure that the proper mortgage documents are recorded and that the correct lender is identified for payoff at closing.
The majority of properties have at least one unpaid lien, the mortgage, which will be satisfied with the sale proceeds. Other types of liens that could be discovered and require payment prior to or at closing include:
• Tax liens
• HOA liens
• Mechanic’s liens
Compared to Unsatisfied Liens
When a recorded lien is discovered, the title company investigates whether or not it has been paid. If the lien has been paid, but the release, satisfaction, or deed of reconveyance has not been recorded, proof of payment and a request for the lienholder to record the release of the lien are sent to the lienholder.
If the original lienholder has gone out of business or been acquired by a different company, locating the proper party to draft a release may be time-consuming.
Typically, the seller will pay any outstanding tax liens, HOA fees or liens, and mechanic’s liens out of the sale proceeds. The buyer has the option to renegotiate the purchase price, continue with the purchase and clear the lien later, or cancel the contract if the seller refuses to pay off the lien.
Alternatively, the seller may sign a lien waiver. This is especially helpful when purchasing a home that was recently flipped. In certain states, mechanic’s liens can be filed months after work has been started or completed, so the lien waiver will prevent the new owner from being responsible for the debt if a lien is filed after closing.
Good fences make for good neighbors, but natural and manmade boundaries may mislead potential buyers about the size of the property for sale. A boundary dispute is one of the most frequent causes of title disputes, so you should not rely solely on what you can see. It is easier to identify easements, encroachments, and legal descriptions with an official survey.
Easements grant certain individuals or entities access to a portion of the property for a specific purpose. Utility easements and public rights of way are two examples of restrictions that may affect your ability to use land or construct structures. Although easements cannot be removed from a property, sellers must disclose them to prospective purchasers.
When a structure or other feature crosses a property line, creating a title defect, this is known as an encroachment. Similar to an easement, an encroachment can limit your ability to fully enjoy your property. Some encroachments, such as unruly hedges or overgrown gardens, may be minor and easily rectified, whereas others, such as a fence or shed extending onto your property, may be more permanent and require legal action to resolve.
If the encroachment on your property is not addressed, your neighbor may file an adverse possession claim for the portion of your property.
If you purchase a property with an offensive encroachment and your neighbor sues you, you may be required to address the issue. In order to avoid such legal and financial issues, purchasers should request a land survey to reveal any encroachments.
Legal Description Errors
When searching for title defects, title agents refer to the legal description, not the address, because it serves as a unique identifier. Legal descriptions are written in various ways, but they all convey the property’s boundaries. In some cases, the legal description may be incorrect or it may not “close,” meaning that the starting point and ending point do not coincide when measuring the land.
If a title agent discovers any inaccuracies in the legal description, they will work to rectify the situation prior to the sale.
If you have any doubts about the property lines, you should order a survey to confirm whether there are any easements, encroachments, or problems with the legal description. Submit the results to your title agent for review so that standard boundary exceptions can be removed from the title policy.
A land survey provides valuable information, but its completion can be time-consuming. Find a surveyor as soon as possible during the inspection period; inclement weather and a lack of available professionals can cause delays.