The 7 Most Common Real Estate Title Issues
If you think title insurance is a luxury and not a necessity, think twice. The Washington Post reported that one-third of all real estate transactions require “extraordinary work” to remedy a title issue, meaning your chances of having a title with a “cloud” or defect are fairly high. Unknown defects such as outstanding liens (e.g., unpaid taxes or contractor bills) or encumbrances (e.g., errors in deeds) mean more fees for the buyer or possibly the invalidation of the buyer’s right to own the property.
While there are dozens of reasons why a title might have a defect, these are the seven most common title issues we see here at SMART:
- Liens
- Judgments
- Bankruptcies
- Undisclosed Heirs and Wills
- Boundary Disputes
- Forgeries
- Easements
Liens
A lien is the right to keep possession of another person’s property until the debt is cleared. The three most common types of liens are property, mechanics, and judgment.
A property lien is placed on each property at the start of every tax year, and it is lifted when the tax bill is paid in full. Owners who do not pay their taxes cannot lift the lien on their titles until the taxes are paid.
A mechanics lien is placed on properties by general contractors or property service providers. The lien is placed on the property when the bill for work done on a property is not paid.
When a judgment is awarded in court, the owner is ordered to pay off its debt to the creditor. Until the amount is paid in full, the creditor places a lien on the property, preventing the owner from selling, trading, or transferring the property’s title without paying the lien off.
Public Record Mistakes
Humans make errors, and this could mean there are errors in the recordation of property information. Common errors include inaccurate square footage, improperly filed papers, unreleased mortgages, and misspellings of names or addresses.
Bankruptcies
If an owner has an equitable and legal interest in a property and then files for bankruptcy, the property can become part of the bankruptcy case. Although the creditors are not legally allowed to foreclose on a property, the seller must petition the court to release the property from the bankruptcy process.
Undisclosed Heirs and Wills
A title search can uncover missing heirs who are entitled to the property, including children from previous relationships or distant relatives. The search can also unearth previously undisclosed wills, changing the order of ownership. If you do not have a title insurance policy that covers these situations, you could be facing a legal battle.
Boundary Disputes
Two property owners may argue about where a property line is and who owns which pieces of property. It is recommended that you order a location or boundary survey to ward off these types of disputes, but even with a survey, challenges to boundary lines can still occur. Property owners run into this issue when they try to build on disputed property (e.g., building a fence or cutting down a tree).
Forgeries
One unknown title issue that may crop up at any time is forgery. Past claims to the title could include fake names, a forged signature, deeds given fraudulently, fraudulent notarization, errors in the legal description, and a right of access eliminated by a neighboring foreclosure. While those indiscretions happened in the past with previous owners, the current owner is responsible for the title and all of the baggage it brings.
Easements
An easement is a right to use a piece of property that is not yours, and two common types of easements are access to utilities or a shared driveway. Easements are supposed to be publicly recorded, and they should be listed in your title report. However, many owners find issues with easements when they try to build something that obstructs the right of way of another person.
What can you do to avoid some of these title issues?
- Sellers and buyers need to conduct their own home inspections before closing to identify potential questions and issues.
- Buyers should purchase a survey in advance of closing and compare to their own knowledge of the property.
- Sellers and buyers should be familiar with property disclosure laws in DC (or should hire a professional who is) to ensure all required conditions are disclosed.
- The buyer should hire an experienced title company to conduct a thorough title examination.
- And finally, purchase title insurance to cover many other title issues that could appear before and after closing.
If you are buying a home in the DMV and are ready to learn more about a property’s title, contact a SMART agent by clicking the “Title Quote” button at the top-right of this screen!
For additional information on this topic contact Evelyn Miller, Partner, at 202-753-7400.
