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Title Insurance: Considerations and Concerns

In almost all real estate transactions, there are title issues that must be cleared  in order to transfer ownership of the home from the seller to the buyer.

Here are some key considerations and concerns:

Does the seller have the legal right to sell the property?

– Is the home’s title free of “clouds” or “defects” — such as judgments, liens or bankruptcies — that would prevent the seller from transferring “clear” or “marketable” title to the buyer?

– Title company typically examines public records — often going back 50 years or more — they look for past deeds, wills, trusts, divorce decrees, bankruptcy filings, court judgments and tax records etc.

Title issues must be resolved in order to get clear title to the buyer.  The agent, usually the Seller’s attorney, will request and conduct the title search.  The results of the search will be compiled into a preliminary title report and provided to all of the parties involved in the sale.

Common liens include:

  • Mechanic’s liens: Liens placed against a property by a general contractor — filed before starting the work in an effort to ensure that they will get paid. The lien should be released when the job is completed and problems may arise if the contractor fails to record the “satisfaction” of the lien and it remains on the property’s title.

The title company must then determine whether the lien was properly filed and recorded in the public records, and whether notice was given in accordance with state law.  Mechanics’s liens typically do not have an indefinite lifespan and will expire if not acted upon in the prescribed amount of time.

  • Bankruptcies are another source for potential title issues. The title agent would need to confirm if bankruptcy case had been discharged. If not, it will be necessary to petition the court to release the property from the bankruptcy process.
  • Another common type of lien is for child support — even though the debt may have been resolved.
  • Liens for past-due spousal support or delinquent taxes.

If the seller is not aware that a lien or other encumbrance is attached to the property, it can take days — or weeks — to resolve the problem.

Title companies can remediate most matters and most title issues can be resolved with the assistance of the buyer or seller’s attorney.

Common questions that often arise concerning defects in the title that are not recorded — or defects that the title company has no way to know exist?Here is a list of 70 potential problems:  http://www.firstam.com/title/resources/reference-information/title-insurance-reference-articles/70-ways-to-lose-your-property.html

A title insurance policy is your best protection against those and many other title problems that may become known after you close on your transaction.

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