{"id":880,"date":"2020-05-26T07:41:43","date_gmt":"2020-05-26T11:41:43","guid":{"rendered":"https:\/\/www.deeds.com\/articles\/?p=880"},"modified":"2024-04-25T23:20:31","modified_gmt":"2024-04-26T03:20:31","slug":"7-common-title-problems-in-real-estate-deals","status":"publish","type":"post","link":"https:\/\/www.deeds.com\/articles\/7-common-title-problems-in-real-estate-deals\/","title":{"rendered":"7 Common Title Problems in Real Estate Deals"},"content":{"rendered":"\n
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When you tour a home, a big question is whether \u201cwhat you\nsee is what you get.\u201d Appraisers, home inspection professionals, and title companies\nhelp offer the answers. Through the title search, ownership of the land in\ntraced back in time, showing current legal ownership, easements, and any notable\nissues.  <\/p>\n\n\n\n

Until the moment the seller signs the buyer\u2019s purchase offer,\nthe buyer can back out of the deal, and a frequent reason for doing so involves\nmarketability of title. A cloud on the title or an undisclosed easement might\ncome to light, putting off a reasonable buyer. In any case, the mortgage lender\nmust be convinced that the market price of the asset is truly fair and accurate\u2014that\nwhat you see is what you get.<\/p>\n\n\n\n

So, in the all-important title search, a title company scours deeds and other documents recorded with the county, state and federal tax lien records, and various financial, bankruptcy, and divorce records that could complicate a title. If nothing substantial is unearthed, the title is deemed clean. Some common, even beneficial encumbrances will turn up in a title search. A buyer can expect to learn about homeowners\u2019 association rules, utility easements, and normal zoning restrictions. But detrimental encumbrances can be dealbreakers. <\/p>\n\n\n\n

Here are seven of the most common title issues to watch for\nin any real estate sale:<\/p>\n\n\n\n\n\n\n\n

1.  \nMortgage liens.<\/h2>\n\n\n\n
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Could the property have a second mortgage lingering at the\ntime of sale? In the worst-case scenario, an unpaid mortgage can lead to\nforeclosure of a home whose new owner had nothing to do with the debt. In other\ncases, the payoff slips through the cracks and the lender fails to record the\nmortgage release. <\/p>\n\n\n\n

And you can\u2019t rely on the preliminary title report to\nguarantee a lien-free title. That\u2019s just a summary of terms and conditions the\ntitle insurer is placing on its decision to issue title insurance.<\/p>\n\n\n\n

What about the insurance policy itself? Once the insurer\nissues a title policy to the mortgage lender, that\u2019s a contract: the title\ncompany has insured the lender against unknown liens. If you buy a property, the\nlender\u2019s policy is not a contract made with and for you. You need an owner\u2019s\ntitle insurance policy so that you <\/em>are the beneficiary in case the removal\nof a pre-existing lien becomes necessary, or you need to recoup the loss in\nvalue. <\/p>\n\n\n\n

2.  \nMechanics\u2019 and vendors\u2019 liens. <\/h2>\n\n\n\n

Home renovation companies and vendors can file liens if a\nhomeowner owes them money, clouding a title. Here again, the title search usually\nunearths any liens needing to be satisfied, paid, and released for the county record\nbefore the closing can occur. And sellers usually agree to use the proceeds of\nthe sale to pay off the liens. <\/p>\n\n\n\n

If the seller cannot cure them promptly, then the buyer,\nupon consulting with the real estate agent or attorney, may walk away from a\nsigned contract. Buyers should be able to back out without losing their earnest\nmoney if they can cite the seller’s failure to meet specified contingencies in\nthe offer within the agreed-upon time.<\/p>\n\n\n\n

But if the title company performing the search misses any\nliens placed on real property, they stick to the property. Is the buyer covered\nfor the cost of removing debts incurred by a prior owner? Only if the buyer has\nan owner\u2019s policy, and is therefore the policy\u2019s named beneficiary. What\noptions does the buyer have, other than to pay to get the lien off? First,\ncommunicate with the creditor to see if that company would release the lien.<\/p>\n\n\n\n

3.  \nJudicial liens.<\/h2>\n\n\n\n

Some court cases lead to liens on a person\u2019s house. Before\nselling, the owner must pay off what\u2019s due to the creditor involved, so the\nlien can be discharged, the satisfaction can be filed with the county and\nrecorded, and the cloud can be removed from the title. <\/p>\n\n\n\n

A title search usually brings recorded judgments to light,\nsuch as unpaid spousal or child support commitments. Or there could have been an\nimproper sale by an ex-spouse during a divorce. Court cases can continue\nthrough a real estate sale, and sometimes appeals can prolong matters further.\nOn the other hand, time can also work beneficially for the buyer. If an old\njudgment comes up in the title search, it might be expired under the time limit\nset by state law.<\/p>\n\n\n\n

4.  \nLawsuits.<\/h2>\n\n\n\n

Pending legal action against a condo, co-op, or homeowners\u2019\nassociation is an especially common situation. Legal actions can begin with unpaid\nassociation fees, construction without the proper permits, disputes that\nindicate a dysfunctional board, and so forth. Not every lawsuit is a\ndealbreaker, but these problems do cause underwriters to balk and they can scuttle\na mortgage loan approval if they\u2019re pertinent to the sale at hand.<\/p>\n\n\n\n

Pro tip:<\/em><\/strong> Buying a condo? Check with the\nhomeowner\u2019s association early in the process to make sure that there\u2019s no\nlitigation pending\u2014or, if there is, that the lender won\u2019t withhold a mortgage\napproval on account of it.<\/p>\n\n\n\n

5.  \nEncroachments and easements. <\/h2>\n\n\n\n

Sometimes, fixtures encroach on adjacent land. Sometimes,\none survey shows boundaries that don\u2019t match other surveys. Some deeds carry errors\nin lot descriptions<\/a> from one homeowner to the next. These are boundary\ndisputes waiting to happen.<\/p>\n\n\n\n

Then there are easements<\/a>\u2014rights\nto use, or come onto, or move across a part of someone else\u2019s property. A prior\nhomeowner could have agreed to a setback on the property, or agreed to refrain\nfrom building anything that obstructs another person\u2019s view, access, drainage,\nand so forth. There can be beneficial infrastructure easements, involving gas,\nwater, or electric conduits, hydrants and so forth. These impact the title as\nthey allow workers on the property to check equipment, cut trees, or use\nresources. They can also come with financial obligations, such as road\nmaintenance and sewer assessments. <\/p>\n\n\n\n

Look for the\nphrase \u201csubject to\u201d in a deed<\/a>. It typically refers to standard\neasements. They might not rise to the level of defects, but they can inform\nrealistic expectations. For example, does the utility company\u2019s easement rule\nout a must-have swimming pool or accessory cottage? Would your plans to start\nup a home-based meal kit company be thwarted by a township zoning ordinance?<\/p>\n\n\n\n

In some rare cases, the problem is an easement that your own\nproperty is missing. If the land lacks public roadway access\u2014perhaps the\neasement from the next-door property was extinguished by foreclosure or other\ncircumstances\u2014then the title has a significant defect.<\/p>\n\n\n\n

6.  \nSurprise heirs and wills.<\/h2>\n\n\n\n

Where there\u2019s a will, there\u2019s a relative, the saying\ngoes\u2014but sometimes there\u2019s no will, and relatives have gone unnoticed. If they\nsurface later, they could challenge a bona fide buyer\u2019s right to own the home.<\/p>\n\n\n\n

Sometimes there really was<\/em> a will, and it turns up\nlater on. Sometimes a supposedly last will went through probate, but it wasn\u2019t\nreally the last. Sometimes, evidence comes to light showing that the heirs\nmisunderstood the deceased owner\u2019s last wishes, or that the will maker was\ncoerced.<\/p>\n\n\n\n

In any case, surprises do happen, and they can get terribly\ncomplicated. Did we mention what a good idea it is for a buyer to invest in an\nowner\u2019s title insurance policy? <\/p>\n\n\n\n

7.  \nClerical errors.<\/h2>\n\n\n\n

Filing errors or clerical mistakes happen. Some part of a\ndeed\u2019s documentation might be missing, or:<\/p>\n\n\n\n