When people search for a new home, their primary concerns tend to be over things like price, facilities, utilities, size, and other material issues. However, if the property has a defective title, even the best real estate in the world can become a nightmare for anyone trying to buy or sell it. Here are five potential consequences of having a defective title on your property:
- The real estate transaction may be halted
- The most immediate consequence to discovering a defective title on a property is that any real estate transaction involving that property is halted.This is because a property with a known defect is considered unmarketable, meaning that it cannot be legally sold. This will continue to be an issue until the defect is corrected, one way or another.
- It may be impossible to obtain financing
- Another issue that can arise due to a defective title is that mortgage lenders will not grant financing to purchase the property. This goes hand in hand with the fact that the property is unmarketable, as banks do not want to lend money for a property that cannot be legally sold. For obvious reasons, this can make it very difficult for many buyers to purchase a property.
- You may need to pay to fix the defect
- If you are the current owner of a property and it is found to have a defective title, you may need to pay to have the defect fixed before you can sell it. In some cases, this is just some perfunctory paperwork, but in some cases it can become a serious hurdle. It can also become incredibly costly, but in many cases, you may not have a choice.
- You may need to sell a property for less than it is worth
- Title defects do not always make a property completely unmarketable, but they can potentially devalue the property compared to its original market price. For example, if a property has an undisclosed easement or covenant, it could dramatically reduce the value of a property and limit how it can be developed. You may also need to discount the price to account for an unpaid lien or mortgage, if it exists.
- You could get hauled into court
- In the worst case scenario, a defective title may cause legal issues that can result in litigation, sometimes years after the original transaction took place. That is why you should make sure to perform a title check prior to closing any real estate transaction, and make sure you have title insurance. That way, you are protected from the consequences of any issues that may arise related to a defective title.
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.
