If you’re in the process of buying or selling a home, there will be many things to deal with throughout. Once the asking price has been negotiated and there’s a purchase offer acceptance, it sets into motion a slew of due diligence which are measures intended to protect each party. Some are elective, while others are necessary to facilitate financing and title transfer.
The first is typically the buyer scheduling a home inspection. The inspector assesses the overall condition of the property and examines such things as the structure, the roof, the electrical and plumbing, as well as the major appliances. Any defects are noted in the home inspector’s report and at that point, the buyer and seller enter another round of negotiation about which party will take care of any needed repairs.
During this time, the bank will send out a property appraiser to ensure the financing being extended to the buyer is at parity with the home’s actual market value. In addition, the buyer hires a pest inspector and a search of the property’s title is conducted, usually by a title company. If there are any defects with the title, those must be dealt with in order to transfer the rights to the property.
Understanding Cloudy Property Titles
A “cloud” on the title means there is a legal attachment to it. This can be a mechanic’s lien, like an unpaid contractor, or for unpaid HOA fees; or, the deed has two owners, who once were married but now are not living together or divorced. It can also be for something like unpaid child support or even an unpaid credit line or loan that resulted in a lawsuit which gave rise to a lien against the property.
The problem with a cloud on the title is that the property cannot be legally transferred to another owner until it is cleaned-up. So, if you’re in a situation where a defect has been discovered, you’ll have no choice but to deal with it and that can be a bit tricky, not to mention, costly. Once the problem has been resolved, the title becomes unencumbered and the sale can then go to settlement or what most people know as the closing table.
“If any clouds on your house title are discovered, you’ll need to deal with them quickly. This can sometimes mean coming up with some immediate cash. For example, if there’s a lien on your house for unpaid child support, it’s probably not going to be removed until you pay the child support or get a statement proving that it’s no longer owed.” —Nolo.com
Usually, there is a bit of time and effort which must go into undoing what’s been done, either by choice or an unfortunate circumstance. Should you now only be discovering a problem, don’t look to your homeowner’s insurance company to resolve it. Your policy will not cover such things, that’s what title insurance is for.
However, that doesn’t necessarily mean your title insurance policy is an automatic out. Like any other insurance, there are requirement standards and of course, some sets of circumstances are simply not covered. What’s more, like any other insurance entity, there likely won’t be a mad dash to resolve your claim and that might cause a prolonged delay in the transaction. It could even mean the deal will have to be put off until the problem is resolved.
Clearing-Up Home Title Defects
In order to facilitate a successful real estate transaction, the title must be cleared of any encumbrances, and the seller will be the one to deal with it. This might require hiring a real estate attorney to churn their craft and get the title in salable order. Here are some remedies for clearing a clouded title:
- Check with your title insurance company. If the problem has to do with errors or omissions made when you first purchase the property, your title insurance should cover the cost of getting those corrected and thereby, clearing the title.
- Remove the lien against the home. Should your property have a lien against it, the quickest way to resolve the problem is to deal with it and pay what’s owed. If you dispute the basis of the lien, seek professional advice from a real estate lawyer.
- Update the deed to reflect the current ownership. Sometimes, the deed does not reflect all the property’s owners or includes a name that no longer associated with it. If there are undisclosed heirs, title insurance can fix it. If it’s a former spouse, then you’ll have to get the deed updated.
- Consult a real estate attorney. Should none of the above remedies be enough or not a fit, then speak with a real estate lawyer. Learn what you options are and take the matter from there. If applicable, you could be looking at legal action against the previous owners.