You’ve been searching for a property for months and finally found a home, a commercial building, or a piece of land you want to purchase. You’ve negotiated a price with the seller you’re comfortable with.
Now all you need to do is pay the seller an earnest deposit, hire an inspector, and close the deal, right? Not so fast.
You soon learn that your property comes with complications. After your title insurance company conducts a title search, they alert you that the property contains a defective title. You’re in a bind.
Your bank won’t issue you a loan because the property has been deemed to have an unmarketable, defective title. So what do you do?
To learn what a defective title is, how it becomes defective, and how to fix it, keep reading.
What Is a Defective Title?
A defective property title is a real estate title that’s deemed to be unmarketable. One of the reason’s it’s not marketable is because the seller doesn’t own the title.
Sometimes a title becomes defective because the seller hasn’t filed the proper real estate documents. A defective title can negatively affect a real estate transaction.
A defective title can also be known as a “cloud on title”. Regardless of its name, it can delay or cancel the closing of the sale because the true property owner cannot be identified.
Reasons for a Defective Title
Several reasons for an unmarketable title exist. Let’s discuss a few of them.
The Seller Doesn’t Own the Real Estate
Upsetting as it may sound, the party you’re planning to purchase the home from may not be the lawful owner of the property. This false representation can be due to an intentional deception or an unconscious mistake.
That’s why it’s crucial to conduct a careful investigation of wills and estates documentation when doing a title search. Here’s a scenario: say before the current homeowner, a man owned the home many years ago. This man left the home to his four children, but only three of the children signed the deed.
The child who forgot to sign the deed ended up in possession of the home. When he decides to sell, this can present a serious issue for both him (the current homeowner) and the buyer.
The heirs will need to be contacted. Terms will need to be discussed with the heirs who will need to relinquish their rights to the building or land parcel.
This process can be costly and take time. However, it may be necessary to purchase a property legally owned by another party. Another complicated issue is if you’re in the process of getting a divorce.
Missing or Erroneous Public Records
Another reason why a defective title occurs is due to incorrect documentation. Erroneous or mission public records can cause a defective title.
It can happen from clerical errors or intentional misrepresentation. Whatever the reason, it can complicate the process when purchasing a property.
Sometimes a title search may not find any specific public records. These missing documents could put a damper on property ownership. However, purchasing title insurance can shield you against this kind of title defect by identifying the source.
Performing a title search will also return information about existing liens on a property. A person who has lent a property owner a sum of money can hold a rightful claim to the property a party owns.
When someone doesn’t pay a lien, a property can be forfeited to the lienholder. When a title agency performs a title search, any liens against a property that needs to be paid or released before purchase should come up in the search. Here are some kinds of liens that title searches may disclose:
- Tax Liens: When the property owner owes money for back taxes, owes the IRS money, a lien can be placed on a home by federal, state, or local authorities
- Judgment Liens: When a creditor obtains a judgment or is awarded monetary damages in a lawsuit
- Mortgage Liens: A lender, often a bank, may obtain a lien from a property owner as collateral for a mortgage or deed of trust
Additionally, although an unreleased mortgage may not be binding on the homebuyer, the property you intend to buy can be foreclosed. The lien can also remain of record if the mortgage or deed of trust lien has been paid. This occurs when the lender does not record or file a release.
How to Fix a Defective Title
When you learn the property you intend to purchase has a defective title, there are ways to fix the problem so your title is no longer defective. This way, the title won’t be deemed invalid.
Quite often this can be achieved through performing a title search at your local county recorder’s agency. County recorders maintain real estate transaction records.
They will be most likely be able to learn the actual owner of the property you’re intent on purchasing. If this doesn’t prove to end a fruitful outcome, you may resolve a defective title dispute by filing a “quiet title” action.
Quiet title actions are lawsuits that request the court to decide who the rightful owner of the property. During this process, the court analyzes the facts and reviews all of the documentation to reach a ruling.
Ready to Fix Your Home’s Defective Title?
Turning up a defective title during a home title search doesn’t mean you need to cancel your real estate deal. By following the suggestions in this guide you can still sell your property or buy your dream home.
Looking to buy or sell a home in beautiful, sunny Florida? Contact our real estate agency today for a fast and easy sale!