One of the worst things that can happen when you are trying to buy a new home is finding out the property has a defective title. When that happens, it can throw your entire real estate transaction into chaos, and potentially lead to legal and financial trouble for both you and the seller. But how are you supposed to protect yourself if the title of the property you want to buy turns out to be defective?
What is a Defective Title?
When people talk about a defective title, what they mean is that the title to a property (the legal right to own the property) has some kind of problem that complicates the ability to sell it. These defects range from relatively minor problems that can be resolved through negotiation and adequate disclosure, to serious problems that can become difficult and costly to resolve. If a defective title is not dealt with promptly, it can lead to legal and financial problems, and may make the sale of the property nearly impossible.
What Kinds of Title Defects Are There?
There are a number of different ways that a property’s title might be considered defective. These include, but are not limited to:
- Unpaid mortgages or liens against the property
- Unpaid property taxes
- An unpaid, secured loan that uses the property as collateral
- Undisclosed easements or covenants
- Undisclosed heirs from current or previous owners
- Errors in public records
- Disputes over boundaries or survey data
- Fraudulent or forged documents
What is the Problem With Having a Defective Title?
When a property’s title is found to be defective, what happens will depend on when the defect is discovered. If the problems are found before the sale closes, the buyer and seller can negotiate to try to cure the defect, or otherwise call off the deal (and potentially suffer penalties for doing so, depending on the terms of any contract that was signed). If the problems are found after the sale has already closed, it can lead to serious potential litigation as both sides are forced to resolve the problem through the courts.
What Can You Do to Protect Yourself?
The best solution to dealing with a defective title is to catch the problem early, and the best way to do that is to perform a title search to identify any potential issues. However, a title search is not perfect, and there is always the risk that you will miss something important. That is why you should make sure to get title insurance for your transaction, which can help to mitigate the legal and financial risks of title defects.
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.
