Avoiding Delays in Closing Pertaining to Defects in the Chain of Title

Any number of circumstances can delay or cancel a closing in a real estate transaction. Some issues are beyond control, but others can be easily managed by a concerted effort between the Realtor, the buyer, the seller, and the lender. The reasons for a delay or a cancellation can range from buyer’s remorse, rejection of loan, a failed home inspection, or a defect in the title. A Realtor should do all they can to avoid delays or cancellations.

Unless a buyer is paying in cash, closing procedures for a conventional loan will probably take at least 30-45 days. A conventional loan will usually close faster than an FHA loan, which is more likely to take 45 days or more. More than 53% of first-time homebuyers in 2012 used FHA financing, according to the April 2012 Campbell/Inside Mortgage Finance HousingPulse Tracking Survey. It is best for all parties involved to plan accordingly by allowing some flexibility in their schedules so that alterations to the closing timeline aren’t too detrimental. Perhaps lengthening the closing timeline at the beginning of the process would also help, as a more generous and accurate timeline would help to eliminate delays.

Title defects are common hurdles that can add extra days or even weeks onto a closing. An easy way to avoid a delay of this type is to deal with potential problems upfront. A preliminary title search can be conducted as soon as a listing is taken. A buyer’s agent can arrange a title search for the property early on in the process to make sure the seller has a right to sell the home. Some listing agents are wise to include a preliminary title report as part of their package. The fee for this is added to the overall fee if the buyer wants to use the same title company.

If there are problems with the title, such as having a deceased person still listed as the owner, it is best to be aware of these issues before closing. If a title search is conducted two days before closing and it is found that the title had been held by a married couple and the surviving spouse neglected to transfer the home, this will cause the closing to be delayed so that the title can be cleared. If the buyers have arranged a moving company, have cancelled a lease on their apartment, and have already put utilities in their name at a new house, a delay of a few days can be rather stress-inducing. Title defects are made even more annoying when it becomes clear that such issues could have been avoided without too much trouble by conducting a preliminary title search.

A common defect in the chain of title is that a deceased person’s name is still on the deed because the surviving spouse never had the deed transferred into her name. When a spouse dies, the remaining spouse should have the deceased’s name removed from the deed in order to keep a clear chain of title.

First, obtain a copy of the deed. The title can be held as tenants by the entirety, joint tenants with rights of survivorship, or as tenants in common. If the deed is jointly owned as tenants by the entirety or joint tenants with right of survivorship, the widow becomes the sole owner upon the other spouse’s death.In this case, the transfer will be automatic, but removing the deceased’s name from the deed will help to ensure that the title is free from defects. When property is owned as tenants in common, the deceased’s interest will pass to his legally entitled heirs.

Next, make a new quit claim deed that names the surviving spouse as the sole owner. A death certificate or affidavit of death will also need to be submitted. If you cannot be sure that the property is free from defects and claims, use a quitclaim deed. However, if the title can be conveyed with the guarantee that no one else has a claim of ownership, a warranty deed can be used.

Next, sign the deed and have it notarized. Record the deed and the death certificate (or an affidavit of death) in the county where the property is located. If the title is not transferred, a title search will reveal that the widow is not listed as the sole owner when he/she attempts to sell the house. A title search will determine if a seller has a saleable interest in the property, will determine if there are restrictions or allowances pertaining to the use of the land, and will also uncover any liens on the property that need to be paid off before or at closing. Problems in the chain of title will delay closing and can even jeopardize the buyer’s loan package. Realtors should try to avoid this problem by having a preliminary title search performed.