When it comes to purchasing a new home, ensuring the title is defect-free, or “marketable,” is of extreme importance. In fact, the outcome of the real estate transaction hangs in the balance of title, or ownership claim, to a property. In many cases, the title search returns free and clear, allowing the parties to move forward with the settlement process. Some title searches, however, reveal snags in the chain of title, halting the transfer of ownership from one party to the next until the discrepancies are resolved.
In this first portion of a three-part series, we’ll review some of the most common title defects, and how each typically is resolved. As with several aspects of real estate and title, certain situations fall beyond the commonalities presented here, and require additional time or modalities to affect defect resolution.
Common Title Defects and Resolution Processes
- Clerical Errors or Omissions: When clerical or recording errors or omissions are identified, the title company or agent handling your closing works to correct the issues as quickly as possible. This typically involves contacting the party who committed the error and obtaining clarification of the correct information. However, the manner in which this happens varies, depending on the type of error or omission. For instance, in the case of an incorrect legal description, the settlement agency would request a deed of correction from the party who generated the deed. The correction is then filed with the clerk of courts, upon which the proper information is recorded and the defect resolved.
- Unreleased Deeds of Trust: In this situation, a deed of trust (from a prior owner) is still attached to the property, and yet to be released by the Land Records Office. To resolve this type of title defect, the settlement agent must contact the lender who held the mortgage lien or title company who conducted the closing (in the case of a refinance), then file the appropriate paperwork with the court. Unreleased deeds of trust are extremely common title defects, and usually easily resolved.
- Judgments and Liens: Judgments or liens, such as mechanic’s liens, HOA liens and tax liens, against a property must be satisfied to release title for transfer of ownership. These typically arise when a seller (or previous property owner) has failed to pay off a lien filed against the property in question. Resolution of this type of defect varies, according to both the circumstances surrounding the judgment or lien and the amount of time it has been attached to the property. In general, however, the seller must satisfy the judgment or pay off the line to clear the defect from the title.
Best Defense Against Title Defects
In some cases, title defects may go undetected, only to be discovered at a later date, when a property is in the process of changing ownership. The best way to protect your financial interest in your property is to to purchase an Owner’s Title Insurance policy at the time of closing. These types of policies help mitigate your risk of financial loss and cover the cost of restoring clear title.
Stay tuned for part two of our Title Defect Resolution series!
Our team at Linear Title & Escrow is pleased to answer your questions regarding title defects or other closing concerns. For more information, contact us today!