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Title Problems at Closing
There are instances when title issues pop up at the last moment of the home sale. In the best-case scenario, the title issues are minor and the closing would only be delayed. In the worst case, the sale will fall through and all your efforts will go to waste.
Some of the most common title issues that can delay or prevent a home sale are public record errors, unknown or unresolved liens, title fraud, undiscovered will, illegal deeds, survey errors, easements, encumbrances, etc. To avoid delays during closing caused by title problems, run an early title search and work with the real estate attorney involved to settle all the issues, especially legal ones.
Settling a title issue or title defect during an ongoing home sale is bound to be difficult. But if you know the basics and where to seek help, the closing table would still be within reach. Read on to learn more about avoiding closing delays and how to resolve title issues!
What is a Professional Title Search?
A title search examines documentation and public records to ensure that the title of the house is free of unknown or unresolved liens, claims, legal description errors, or other issues that can prevent a home sale. This also proves one's legal ownership of a property.
Most often, you need a complete title search conducted when it is required by a mortgage lender to ensure that the house they are providing funds to is clear to be sold. In other words, a title search is needed to protect both the house buyer and the lender.
Title companies usually perform a title search on behalf of the buyer or mortgage lender so the seller can address title issues.
A title abstractor or title officer who works for the title company will be tasked to search through land and property records to verify ownership, search for issues, and possibly, settle them.
Abstractors contact lenders, agents, and other legal parties connected to the property and file a preliminary title report. They look into court judgments, past deeds affecting property rights, tax records, paid mortgages, etc.
Another role of title companies is encouraging buyers to purchase a title insurance policy that protects them from conflicts that can be traced to the property's previous owner. They provide the homeowner with a copy of the Title Commitment, which discusses what is included when they purchase title insurance.
Common Title Issues at Closing
Title issues, also called clouds on the title or title defects, are problems that need to be resolved in order for a home sale to take place. Often, these issues fall under two categories— fraud and mistakes.
Public Record Errors
The property's deed or the legally recorded documents that detail the ownership and other specific details of the property can sometimes contain errors.
Any missing information, errors in the legal description, as well as clerical mistakes, are considered title defects and should be addressed in order to re-file the deed before the real estate closing.
This also includes filing errors. Fixing errors on the property's deed can incur a large amount of money.
Unclear Boundaries or Survey Errors
Surveys are done to measure the legal boundaries of your property. Ideally, you should have a copy of your property's survey, but if you don't, the buyer may commission a new survey. If errors are found, you would be tasked to settle the issues.
An easement occurs when someone else can legally use your property for a certain purpose. For instance, a school can let their students pass your side yard since their building is on the other side. Another example is when utility companies access cables or power lines situated on your property.
While easements are typically created for the benefit of the whole community, this can also negatively affect a home sale, especially if it is not discovered and discussed early.
A lien is probably the most common title issue or title defect discovered during the real estate closing process. Your house will have lien issues if you have unpaid taxes or debts to certain entities.
Technically, when a house has a lien, you don't have a legal claim. To prevent this title defect from delaying or preventing a home sale, you would have to pay your debts.
There are cases when the lien was resolved by the previous owner, but that owner wasn't issued a release from the lien. This type of title defect can be easily resolved through a "reconveyance records payment."
As for child support liens or most mechanics's liens, you would need to settle what you owe before or at closing with the sales proceeds.
Unknown or Missing Heirs
It is possible that an ownership dispute is discovered during a title search. This is especially true if the previous owner died before the home sale.
There may be several heirs or inheritors claiming ownership of the property, or there is a missing person who needs to agree with the sale. Moreover, some relatives may also contest the heir's right to claim ownership, citing various legal issues such as adoption, etc.
Title Fraud and Forgery Issues
Title fraud is often committed by using stolen or forged documents. If the previous owner of the property used someone's identity and claimed ownership of a home, this will be discovered during a title search, and your chances of selling the house will be jeopardized entirely. You may even be tagged as a false owner.
One of the most prevalent examples of this problem, according to the American Land Title Association, is a typical spousal fraud issue where one spouse copies the co owner's signature.
This is similar to someone signing a joint tax return when the other party is not informed. Unfortunately, this is not easily discovered by a current or former title officer, so it poses a huge problem. The good thing, though, is that this is covered by title insurance (if you purchased title insurance when buying the house).
Encroachment refers to building or extending a property that violates the rights of the neighbors—in other words, crossing the property line indicated in the title.
This may be as simple as building a fence a few inches beyond the property line or building a massive new structure eating up the lot of your neighbor.
If you or the previous owner of the property committed encroachment, settling it can be stressful and expensive.
If a previous deed is documented or filed by a person with an unsound mind, a minor, or an undocumented immigrant, its enforceability can be affected causing the home sale to fall through.
Typically, when a property owner dies and has no apparent heir, the state has the legal claim to his assets, including the properties he owns.
If you bought a home that used to be owned by a deceased person with no clear will, your legal right to the property might be jeopardized if a will is discovered later on. Even though the title is named after you, you may not be able to sell the home until ownership issues are settled.
How to Resolve Title Issues
Wondering how to resolve title issues so you'll end up with a clear title? ...
Generally, the first step in resolving title issues is identifying them. This will help you understand and navigate the situation you're in. After this, you need to work with professionals who are more knowledgeable on the legal aspects of the issues uncovered.
If you need more guidance, here are three tips on resolving title issues that you may find helpful.
Work with a Title Company
As established earlier, title companies report issues in the deed aside from providing title insurance policies. Once they have pointed out the title issues, they will recommend your next course of action.
They may suggest simple solutions like settling your debts or they may also ask you to seek professional advice from a real estate attorney if you didn't know that title defects existed.
Usually, the buyer chooses the title company during real estate transactions, but if you want to do an early title search and resolve issues right away, you may hire one while considering these two aspects:
- Reputation: Since the title company will coordinate perhaps the biggest sale of your life, you must ensure that they're reputable. If you are searching online, you'll know they're reputable if they have an easy-to-read and up to date website that contains the services they offer, their address, links to their pages on social media, as well as testimonials. You may also check public records or Google and Yelp reviews to see if they have successfully helped resolve title issues before.
- Office Location: When fixing title issues, the title company should be proactive. This would be possible if their company quarters are near you or if they have a satellite office in your area. If they are really far, they should be willing to send their abstractor or agent to your location.
Despite being your number one go-to in terms of title issues, the title company can only do so much. In most cases, you're the only one that can resolve the clouds on your home title.
Hire a Real Estate Attorney
Although it may be expensive to hire a real estate attorney or closing attorney, resolving title issues with their help can be fast and easy. They can help you re-file the deed that has errors in the public records. They can also settle boundary or ownership disputes as well as deal with contested wills or liens.
To be specific, real estate attorneys can help you with a child support lien, mechanic's lien, state tax lien, liens due to mortgage loan, etc.
Involve Your Licensed Real Estate Agent
Many home sellers do not disclose title issues to their agents, thinking they will stop showing and marketing the home. While the fear is valid, this should be avoided at all costs.
Remember that real estate agents are experienced professionals. They may have dealt with the same case before, so they can point you in the right direction. They are also knowledgeable on what issues are covered by title insurance, so they can offer you guidance.
Take Charge of Issues You Can Solve on Your Own
There are title issues that can be resolved without seeking the help of professionals. This can save you a lot of time and money once you transfer ownership of your real estate.
For instance, if the title search discovered a lien on your property, you may want to get in touch with the lien holder and ask for documentation of the debt. You can then negotiate a repayment plan.
If you have boundary disputes with your neighbors, come up with a voluntary resolution like buying the portion of their land you accidentally encroached on.
Meanwhile, if the cloud in the title is caused by a miscommunication between multiple heirs, you may settle by signing a quit claim deed. A quit claim deed removes one's ownership of the property; however, this offers no warranties.
Do Cash Buyers Purchase Houses with Title Issues?
Yes. Cash buyers purchase houses with title issues because they can wait for them to be resolved. There is a smaller chance that a real estate transaction will fall through when you sell to a cash buyer, even if your house has title issues.
However, it is crucial to note that if a lien is discovered during a property's title search, the amount owed may affect the cash offer.
For instance, if what is owed is more than what was offered for the house, the cash buyer may not be able to offer more in order to buy it. In other words, the cash offer would only pay the lien and may not be enough to cover all of it. This is also true for retail buyers.
Final Thoughts: Title Problems at Closing
Ultimately, dealing with title issues is time-consuming and stressful. However, no matter how small a problem is, it should not be ignored. It is best to identify and settle title issues early instead of dealing with them during the closing process.
If you have identified all the property's title issues and they lead to an unsuccessful sale on the traditional real estate market, consider selling to a cash buyer.
Here at Sell My House Fast, we provide reasonable cash offers to houses with title issues! We can wait for the title issues to be resolved and make the selling process hassle-free for you.
Fill out our form below or call us at (844) 207-0788 to learn more about selling your house with title issues.