Obtaining Clear Title: What you need to know before selling your home or condo
Written by Brian Enright
Selling a home or condo is an important decision, and the issues involved with this endeavor can be stressful for many homeowners. One important part of the process is obtaining a title report. A title report includes general information about a piece of property, such as its legal description, zoning, the tax rate, names of current title-holders, and a history of recent title-holders. If any issues exist that affect the title of the real estate, this information will be included in the title report. These issues can include overdue property taxes, overdue income taxes, mortgages, liens, and potential problems with property boundaries. Before financing can be arranged for a parcel of real estate, it's usually necessary to generate a title report to uncover any potential issues that may need to be resolved before closing. Lenders require a clear title before agreeing to finance a real estate purchase.
Common Issues on Title Reports
- Legal judgments are one issue that may show up on title reports. An example of a judgment could be a lien for an unpaid child support debt that the property owner needs to pay. Unpaid federal or state taxes can also be liens that appear on title reports.
- Local service providers can place a judgment on a title report if a homeowner receives services and does not pay for them. Examples of this type of judgment include water and sewage services.
- An unpaid judgment can block a mortgage from assuming first place in the line of entities that get paid if a loan default occurs. This is why judgments must appear on title reports.
- Lawsuits and divorces are common judgments that may hinder a real estate transaction from moving forward.
- Failure to pay property taxes will result in tax liens being placed on real estate, and these liens will show on a title report.
- Liens showing on a title report may be mechanic's liens placed by contractors who performed work but were not paid for their materials or services. Examples of contractors who can place liens on property include roofers, painters, and general contractors.
- Encroachment is a type of trespass on another property owner's land. An encroachment is a something that extends onto an adjoining property, such as a fence or landscaping. Driveways, decks, garages, and even portions of a house can be encroachments that interfere with a title report.
- A property survey may uncover an encroachment that would need to be resolved prior to issuance of a clear title report. One way of removing an encroachment from a title report is to remove the offending item from the adjoining property.
Resolving Title Issues
- An improperly filed document can lead to a title defect, and resolving this defect could be as simple as filing the document correctly.
- A lien release can be provided by the Federal Deposit Insurance Corporation to resolve a title issue.
- Purchasing title insurance can provide protection against loss if a property ownership dispute occurs in the future.
- In an event that an undisclosed title issue occurs after a real estate transaction, title insurance can protect against potential loss.
- A clear title is one that is free of any title issues, and a clouded title has known encumbrances on the property.
- The expenses of buying a house often include various title charges, which include a title search, title insurance, and attorney fees.
- Purchasing title insurance typically involves a one-time payment made at closing, and it remains in force for the duration of ownership of the property.
- Paying off a debt that resulted in a lien can resolve a common title issue.
- An attorney or a local title company can help remove claims against a property to resolve a title issue.
- Sometimes, real estate is titled to a deceased person, in which case the chain of title would need to be changed to include the person in possession of the parcel.
- Paying an outstanding tax debt to the Internal Revenue Service will remove a tax lien from a title report.
- A homeowner with a common name may experience a title issue if the name triggers judgments that involve other people with the same name. To resolve this issue, the homeowner will need to complete an identity affidavit to verify that the judgments belong to someone else.
- If a debt was already paid but still shows as a lien on a title report, the homeowner will need to contact the creditor to have a property notice of satisfaction filed. This will remove the title defect from the report.