Three Title Issues that Can Delay a Real Estate Closing
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- Amanda Farrell
- March 16, 2022
- 1:05 pm
- No Comments
Every real estate transaction is different, and several factors can affect a closing. Title issues tend to be one of those items.
Resolving title defects like an unpaid lien is usually straightforward. However, not all title problems are obvious or easily resolved, especially if you’re buying a distressed property.
Working with the right title company will help you navigate these issues more effectively and close deals faster.
Why a Professional Title Search Matters
If you’re financing a deal with a mortgage company, your lender will require a title search. If you’re paying cash, there’s an option to waive it, but skipping a title search is a gamble that may not pay off. Problems with a property can go beyond what the eye sees like an old roof or a crack in the foundation.
A professional title search provides clarity on who can sell you the property, what you are buying, and how you can use it.
Once the search is complete, the title company obtains a title commitment outlining what title problems will be resolved or “cured” before closing (requirements), what potential undiscovered problems will be insured, and the exceptions or exclusions for insurance.
Distressed properties, in particular, are likely to have additional problems that must be uncovered with a search in the public record. To avoid a money pit, you should always work with a title company or attorney to clear these issues properly and protect against financial losses.
Tired of searching email chains for updates from your title company on a transaction?
What factors can slow down a real estate transaction?
Before a title insurance policy can be issued to either a lender or owner, a title search must be conducted and a title agent or attorney works to clear any problems.
Common title problems found before closing may include:
- Chain of title document errors
- Recorded liens
- Boundary discrepancies
Chain of Title Document Errors
A title search will establish who holds the title, how the title is held, and if any other parties hold an interest in the property.
Three key documents show who holds the title or holds an interest in the property:
- Vesting deed
- Mortgage
- Mortgage assignments
The vesting deed is a vital document establishing the current owner while mortgages and mortgage assignments track which lender holds the outstanding debt on a home loan.
Vesting Deed Errors
These simple errors can set back a closing since a corrective deed would likely need to be drafted and recorded before finalizing the transaction.
A new deed should also be drafted and recorded to remove deceased parties from the title. A spouse or partner may assume that they have the right of survivorship and that the title automatically passes to them, but that’s not always the case. Family members of a deceased owner might not realize that probate is required to determine who takes control of the property before it can be sold. If the owner died with a will, the transaction will likely be on hold until probate proceedings are completed.
If the seller is divorced and the former spouse’s name still appears on the deed, a quitclaim deed or other type of deed as required by the state may need to be signed by both parties.
A title company or attorney will look for these problems and work with the appropriate parties to draft and record corrective deeds and ensure that the proper procedures are followed to ensure clean title is conveyed at closing.
Missing Mortgage Assignments
Mortgages are recorded documents showing which lender owns the debt on a home loan. If the original lender decides to legally transfer their interest in a property to a new lender, a mortgage assignment is recorded. An endorsement of the promissory note is also signed over to the new owner of the loan.
Much of the mortgage industry uses a separate system to track these documents called MERS.
While the mortgage assignment is required to be added to the public record, it doesn’t always happen. In these cases, your title company will ensure all the correct mortgage documents are recorded and the correct lender is identified for payoff at closing.
Recorded Liens
Most properties have at least one unpaid lien – the mortgage – that will be paid off with the proceeds of the sale. Other types of liens that may be uncovered and require payoff either before or at the closing include:
- Tax liens
- HOA liens
- Mechanic’s liens
Unpaid vs. Unreleased Liens
When a recorded lien is found, the title company researches whether it’s been paid or not. If the lien has already been paid, but the corresponding release, satisfaction, or deed of reconveyance hasn’t been properly recorded, proof of payment is sent to the lienholder along with a request for the lienholder to record the release of the lien.
Tracking down the right party to draft a release can cause delays if the original lienholder has either gone out of business or been acquired by another company.
Typically, any unpaid tax liens, outstanding HOA fees or liens, and mechanic’s liens will be paid by the seller out of the funds of the sale. Still, a seller may refuse to pay off the lien, so buyers have the option to renegotiate the price of the purchase, continue with the purchase and clear the lien later, or cancel the contract.
Another option is to have the seller sign a lien waiver. This is particularly helpful when purchasing a recently flipped home. Mechanic’s liens can be filed months after work was started or completed in certain states, so the lien waiver will prevent the new owner from being saddled with the debt should a lien be filed after closing.
Boundary Discrepancies
Good fences make for good neighbors, but natural and manmade borders may give potential owners the wrong impression of how much property is being sold. A boundary dispute is one of the most common causes for title claims, so you shouldn’t rely only on what you see. Easements, encroachments, and legal descriptions are easier to identify with an official survey.
Easements
Easements allow for certain individuals or organizations to access parts of the property for a particular purpose. Utility easements and public rights of way are two examples that may impact how you can use the land or where you can build structures. While easements can’t be removed from the property, sellers are required to disclose them to potential buyers.
Encroachments
An encroachment occurs when a building or other feature crosses property lines, creating a title defect. Like an easement, an encroachment can affect your ability to enjoy the property to its full potential. An encroachment may be minor and easily addressed, like unruly hedges or overgrown gardens, but others, like a fence or shed extending into your land, may be more permanent and require legal action to resolve.
If the encroachment on your property isn’t addressed, your neighbor may file a legal claim to the portion of your property through adverse possession.
If buying a property with an offending encroachment, you may have to address the problem if your neighbor brings a suit against you. To avoid these kinds of legal and financial troubles, buyers should request a land survey to reveal if there are any encroachments.
Legal Description Errors
Title agents refer to the legal description, not the address when searching for title defects because it acts as a unique identifier. Legal descriptions are written a few different ways, but ultimately convey the borders of the property. Unfortunately, there may be cases where the legal description is incorrect or it doesn’t “close,” meaning the starting point doesn’t meet the ending point when measuring the land.
If a title agent finds any errors with the legal description, they will work to resolve the issue before the sale.
If you have any doubts about property lines, order a survey to confirm if there are any easements, encroachments, or issues with the legal description. Submit the results to your title agent for examination to remove standard boundary exceptions from the title policy.
While a land survey provides valuable information, it may take time to complete. Weather and a lack of available professionals can cause delays, so find a surveyor as soon as possible during the inspection period.
Solutions for a Better Title Experience with Blueprint
If you’re tired of searching email chains with your title company to figure out if your deals are on track, switch to Blueprint. Blueprint’s modern technology and systems deliver comprehensive and cost-effective title and escrow services for high-volume real estate professionals and investors.
The Blueprint Portal offers transparency in every transaction, so you never have to guess if your deal is still on track. In the Portal, you can submit orders, track your transaction’s progress, sign and store documents, and find customer support.
Schedule a time with our team to see a demo and get a quote.