These Common Title Problems Can Snag Your Home Closing
In many real estate transactions, there are issues related to title that must be resolved before you can transfer ownership from the seller to the buyer.
· Does the seller have the legal right to sell the property?
· Is the home’s title free of “clouds” or “defects”?
· Are there judgments, liens or bankruptcies?
· Is the title “clear” or “marketable” ?
· How can you be sure?
Title companies report that more than one-third of all real estate transactions require “extraordinary work” to address title issues. The title company will examine public records — often going back 50 years or more for a long search — to look for past deeds, wills, trusts divorce decrees, bankruptcy filings, court judgments and tax records that may be defective or outstanding.
No matter how minor a problem, any title issue will need to be resolved before the seller can offer a clear title to the buyer. The data from the search will be compiled into a preliminary title report that will be given to the buyer, seller, real estate agent, lender and attorney involved in the sale.
Here are ten items that might delay or even negate your title transfer, and derail your closing:
1) Mechanic’s liens are common
They are liens placed against a property that a general contractor files before starting the work. It’s a way to ensure that they will get paid; the lien is supposed to be released when the job is done.
Specific laws, which vary from state to state, dictate how a mechanic’s lien must be filed, processed and/or acted upon. The procedure for Pennsylvania can be different from that in Virginia, Maryland or any other state in the country. Whether it takes precedence over other liens on the property is also specific to the jurisdiction where the property is located.
Problems arise when the contractor fails to file a “satisfaction” of the lien and it remains on the property’s title. The title company must determine whether the lien was filed properly and recorded in the public records, and whether notice was given in accordance with state law. The procedural guidelines for filing and processing a mechanic’s lien for the District, as well as Maryland, Virginia and other states, can be found at www.fullertonlaw.com.
2) Bankruptcies
Another common source for potential title issues. For example, a seller could have purchased a property while they were single, and then married someone with a recent bankruptcy. The title company would need to determine not only whether the new spouse had signed off on the deed, but that the bankruptcy case had been discharged. If not, it would be necessary to petition the court to release the property from the bankruptcy process.
3) Child Support Delinquency
Another common type of lien occurs when a divorced spouse either forgets or doesn’t remove a lien for child support — even though the debt may have been resolved decades ago. A child could inherit his father’s house and decide to sell the property. A lien placed by his mother years ago — but since resolved — could show up in the title search and prevent the sale. The child would have to get his surviving parent to sign a “release of judgment” that states that the debt has been paid in full before you can transfer title.
4) Spousal Support Delinquency
Liens for past-due spousal support or delinquent taxes are also common. The American Land Title Association recently found that fraud and forgery issues between spouses have become more prevalent over the past several years and must be dealt with before a property can change hands.
5) Spousal Fraud
A typical spousal fraud issue could be that a spouse signs the signature of the other spouse on a document or deed — without telling them — to either eliminate an interest or add someone else to the title. It’s similar to when a spouse signs a joint tax return for both spouses — and one spouse is not aware of what he or she is now responsible for.
6) Lack of Clear Ownership
The seller may have inherited the property from a trust and be unaware that one of the beneficiaries or co-owners now lives overseas and cannot be found. The co-owner’s signature would be necessary to transfer the title, and if the owner can’t be located the legal steps to remedy the problem could take months.
7) Forgery
There could have been forgeries, claims from the use of an “alias” or fictitious name, a deed given under duress or fraud.
8) Timing Issues
There could be unrecorded or unknown deeds affecting property of a deceased person, a deed following administration of an estate of a missing person who later appears.
9) Additional Lien
There could be an undisclosed but recorded federal or state tax lien.
10) Description Errors
There might be errors in the legal description, a right of access wiped out by foreclosure on a neighboring land, and many others.
Title companies do most of their remediation work before the closing, unbeknownst to the purchaser. You may not even be aware that some title defects existed because they were taken care of by the title company before the closing. Other times you may be asked to sign a document to remove or release the lien or title defect.
Many title issues can be resolved by filing one of three common documents:
A quit claim deed removes an heir and clears up title among co-owners or spouses.
A release of lien/judgment removes a paid mortgage or spousal or child support lien.
A deed of reconveyance records payment of a mortgage under a deed of trust.
What about defects in the title that are not recorded — or defects that the title company has no way to know exist?
A title insurance policy will be your best protection against these and many other title problems that may be discovered after you close on your transaction. The cost for the policy is a one-time fee, and the policy will remain in effect for as long as you own the property.
In order to purchase title insurance, you’ll need a complete title search conducted by a title company. For a list of more than 70 possible title issues, go to www.firstam.com/title/resources.