By: Lance T. Denha, Esq.
With any purchase or sale of property or piece of land, it’s imperative to check and verify the title to the property prior to any closing. Title issues will tend to show up in one of three ways:
1) During the title search, and are addressed as a matter of course without delaying the closing;
2) During the search, but cannot be dealt with in a timely manner, so there is a delay in closing; or
3) After the closing, at which time the owners hope that their title insurance policy will come to their defense and solve the problem. Obviously, it’s best to avoid title problems before any closing. In order to understand title problems, it helps to understand what title means.
Title, simply put, is evidence that the owner is in full and lawful possession of a piece of real estate. This sounds simple enough, because if one holds a deed to a property, then one must own that property. That may not be the case. One can hold a deed without having the absolute and unquestionable rights of ownership. The title company is responsible for performing the search to discover any impediment to clear title. Impediments can exist for many reasons, and are referred to as clouds on the title.
A title issue can occur for a number of reasons, such as clerical error, misfiling of a document, processing oversight or fraud. Any of these errors can be decades old, and they may remain unknown until either a title search exposes them or because a third party raises the matter. In this article we will discuss the process and explore some of the common title problems to watch for and avoid.
The Title Process
A title order is given to a title company, or an attorney, to perform a title search and to manage the conveyance from seller to buyer. Once the contract is in place, the title agent, the person who represents the title insurance company, will search public records to determine the property’s ownership history, to see what liens may have been and may still be attached to the property, and what other encumbrances may exist. There are items once the title search is underway that may pop up unbeknownst to seller or buyer. For example, a mortgage lender may have a claim on the property that was not known about, or just not disclosed, when the offer to purchase was accepted. It is the title company’s function to search for, and discover, any such potential issues.
Potential title problems should be discovered during the search, and dealt with prior to closing. Below are ten common issues with Title:
- Errors in public records.
- Unknown liens
- Illegal deed
- Missing heirs
- Undiscovered encumbrances
- Unknown easements
- Boundary/survey disputes
- Undiscovered will
- False impersonation of previous owner
As potential issues are uncovered, by the title company and its underwriters, an owner’s policy and lender’s policy will be issued. The owner’s title insurance policy exists to protect the new owner, or their subsequent heirs, against losses resulting from future claims by a third party. The lender’s policy protects the mortgagee, if the buyer is not paying cash and is financing the purchase.
The more a buyer knows about such problems, the more likely they are to avoid them. Any of the foregoing title problems will ultimately be a deciding factor in whether you ultimately close on a property or avoid doing so altogether. These issues are often uncovered by an Owners Insurance Policy. Remember when purchasing property you are always protecting yourself with Title Insurance.