The main purpose of title clearing is to discover and remove defects and encumbrances from the title. These title issues can take a variety of forms, but there are a few categories of common defects and encumbrances that you should be aware of, especially if you are a professional buyer and seller of real estate.
Here are a few of the key categories to know:
Liens are one of the most important categories of defects in a title because they involve the possibility of foreclosure.
A lien is an interest in a property, or more specifically in a title to property, that secures a debt. This could mean that at some point, the owner either took out a loan or bought something on credit and used their title as collateral. It could also occur if an owner failed to pay their property or income taxes, resulting in a government entity placing a lien on the property.
Generally, once a lien is recorded against a property, the lienholder’s debt is secured by the property. If the owner fails to repay the debt pursuant to the agreed upon terms, the lienholder may hold the ability to foreclose on and sell the property out from under the buyer. Thus, it is important that all liens are satisfied prior to the close of escrow unless the buyer contractually agrees to assume the debt with their purchase of the property.
States and counties have very specific requirements for recording deeds and real estate transactions that can vary greatly by market. If these rules and regulations are not met, there may be implications for whether the property actually legally changed hands. This is a type of issue with the chain of title that is often referred to as a vesting issue. The chain of title is the historical record of how the property was conveyed from owner to owner. Ideally, the chain of title is clear, in that all historical conveyances were properly executed by all necessary parties and recorded with the proper authorities.
Most properties, especially urban properties, have at least a few easements. While these are technically encumbrances, they are often harmless, if not beneficial, and therefore not a problem for conveying the title.
Another set of problems can occur from forged or fraudulent conveyances. A forged deed is generally invalid. So, if your chain of title contains a deed that is later proven to be forged, someone else will likely be deemed the rightful owner of your property. Similarly, if someone impersonates the owner of property and sells it to a buyer, the transaction would be fraudulent, to the detriment of that buyer and the chain of title following that buyer.
Unfortunately, even a thorough and diligent title search will not always uncover a fraudulent transaction or forged deed. However, this is where your title insurance comes in as most policies cover fraud and forgery in prior conveyances. Specific policies can vary, so it is important to review and understand the terms and conditions, exclusions and exceptions set forth in your title policy to fully understand your rights in the event of fraud or forgery.
These are some of the most common categories of matters that can affect your title. Understanding each type of defect can help you understand what will be necessary in the title clearing process and how that affects your ability to move your transaction to closing.
The information provided in Peak Title Professionals, does not, and is not intended to, constitute legal advice. All content is for general informational purposes only and is not intended to provide a complete description of the subject matter. Specific processes will vary based on applicable law. The title and closing process will be handled by a third-party attorney to the extent required by law. Product offerings vary by jurisdiction and are not available or solicited in any state where we are not licensed.
