Every real estate deal comes with the implicit promise that the property has a clear title. This means that the title must be free from any complications that would impair the full transfer of the property from the seller to the buyer. Unfortunately, there are a number of potential issues that can arise that can result in a defective title, complicating, delaying or even cancelling the real estate transaction. Here are the top ten title defects that could negatively impact your home sale:
- Errors in public records
- A shockingly common issue, and one of the most common reasons for title disputes, are errors in public records. This can happen for a number of reasons, including previous owners failing to properly record the sale of the property, or mistakes by the local clerk. While these errors are often easy to fix, they must be resolved before a property can be sold with clear title.
- Unpaid mortgages or liens
- A title search often reveals mortgage lien(s) on a property. Unpaid mortgages are generally paid at the real estate closing for a sale or refinance. When a mortgage is paid-off at a closing, the title company will omit it as an exception on its title report and file a mortgage satisfaction. However, if the mortgage Satisfaction does not get filed or is misfiled, , it results in defective title due to the mortgage holder’s ongoing potential property interest. A similar situation occurs when a creditor takes a lien out against the property for an unpaid debt. If these issues are not cleared when they arise, it could affect your ability to close title and/or cost a lot of money to resolve.
- Unpaid secured loans
- Another way a lender might have an interest in the property is if the property was used as collateral to secure a loan. Just as with a mortgage, the security gives the creditor an interest in the property, which must be resolved for the property to have clear title.
- Unpaid property taxes
- Private creditors are not the only people who may have an interest in the property. If the seller has failed to pay their property taxes in a timely fashion, it can lead to an impairment of clear title. All taxes must be paid on the property before the sale can go forward. Note that many people enjoy tax exemptions due to their age, military status, etc. As a result, the taxes initially reflected on a title report may not be the taxes the new owner will pay.
- Disputes over property boundaries
- Another shockingly common issue results from disputes over a property’s boundaries. This often arises when there is a fence on the property that was not properly placed, resulting in part of the property being on the neighboring side of the fence. This may also occur when multiple deeds have conflicting information. Considering this has a direct bearing on what property is actually being bought, issues over boundaries and surveys must be handled to avoid a defective title and inheriting a problem from a previous owner.
- Undisclosed easements or covenants
- Easements and covenants are commonplace in real estate, and by law they must be disclosed prior to the sale of the property. However, not every seller does so, potentially because they are intentionally concealing the easements or covenants affecting the property, but more often because they are unaware that any exist. This is part of why a title search is essential to ensuring a home sale goes smoothly.
- Missing heirs
- An issue that occasionally comes up happens when someone fails to update their will for an extended time or dies without a will (intestate). As a result, there may be an heir that is missing, deceased or the will may otherwise be contested. It can be a major problem if an heir suddenly appears and claims to have inherited a property that the current owner is trying to sell. This can potentially lead to serious litigation..
- Forged documents
- While most title defects are the result of honest mistakes, sometimes it will come about due to intentional malfeasance. A seller may forge documents to claim ownership rights they do not have, or to conceal defects they cannot readily address. For obvious reasons, the use of forgeries in a real estate transaction is a serious issue that makes the entire sale illegal.
- Illegal deeds
- Speaking of illegal transactions, there are a number of issues that can completely invalidate a deed and make the transfer of the property invalid. This includes the use of fraud of any kind by either the buyer or seller, as well as any attempts at coercing the other party into the transaction. In addition, deeds that are stolen or sold without full knowledge or permission of all current owners also may be illegal and result in litigation
- Adverse possession issues
- Usually this is a problem for people with multiple homes, especially those with investment properties that they do not personally visit. When a property sits unoccupied for a long time, it is possible for someone to occupy the premises and begin adverse possession of the property. Depending on how long they have engaged in adverse possession, it could bring into question the property rights of the current seller.
If you are an attorney assisting a client with a real estate transaction, you should contact the title insurers at Habitat Abstract. Our experienced staff will assist you with obtaining a title insurance policy that protects your clients and prevents unforeseen issues related to a defective title. Contact us at 1-888-99-TITLE (1-888-998-4853) or visit our contact page for more information.
