There may appear to be title defects in your legal documents that cause a lot of trouble. Every investment has risk, and you can do everything right and still lose money. What you can be faulted for is not researching thoroughly.
A title report reveals detailed information about ownership, including previous owners and any additional liens a property might have. In this blog, we will discuss common title defects in your legal documents.
Tax Defects
Tax defects are probably the biggest one that will come along.
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A party, maybe the owner, wasn’t aware that there were four different kinds of taxes they paid, the county, the city, the fire district, and the school. Those are all different jurisdictions that may each expect a different check.
A person may have paid one check to one of those entities, expecting the other three to be paid as well. Sometimes those defects are very small, a few hundred dollars, a few thousand dollars, and not a major defect.
Foreclosure-Related Defects
The scarier defects usually have to do with property that’s been foreclosed, whether or not the foreclosure was handled properly by the law firm. Did they notify all the parties that may have an interest in the property? Did they make sure that all the lien holders were properly notified and filed their paperwork properly?
All those things can affect whether a foreclosure has given a clean title to the next owner. Foreclosures are an excellent opportunity to acquire property at a lower price, but there is a bit of risk involved.
Bankruptcy-Related Liens
The thing seen most along that same line is bankruptcies, where a party thinks that having filed a bankruptcy, they’ve cleared all of their liens off of the property. But if that attorney didn’t handle that bankruptcy properly, or the person filing didn’t list all of their lien holders properly, problems remain.
Quite often, a credit card lienholder gets listed as a credit card debt, but that credit card company has already taken it to court and had it converted over to a judgment. A credit card debt is not an encumbrance on real property, but once it gets converted to a judgment, it does become an encumbrance, an involuntary lien.
Quite often during bankruptcy, people list a credit card debt and don’t notify the judge that it’s been converted to a judgment, giving it a priority lien position over anything that comes after it. That can be a big pitfall, seen almost on a daily basis, where people think they’ve had liens cleared because of bankruptcy, but they really haven’t.
Deceased Owner on Title
If the owner of record is deceased, in order to effectively transfer a marketable title, a probate action has to be done. There are generally two types of probate actions: summary administration and formal administration. Summary administration is relatively fast, although some counties take a substantial amount of time.
If the person has been deceased longer than two years, usually a summary administration can be obtained. A summary administration cannot be obtained if the value of the estate is less than $75,000. Formal administration takes quite a bit of time and is quite costly.
Mortgage Not Satisfied of Record
Another title issue that comes up is when a mortgage is not satisfied of record, but the seller swears they paid it off completely. Homeowners have often taken advantage of refinancing options throughout the years, refinancing four, five, six times, and along that chain a mortgage satisfaction just isn’t recorded.
It’s not that it hasn’t been paid; it’s that the mortgage lender has forgotten to record their satisfaction. The first step is to send a letter to the lender requesting that they record their satisfaction. If they don’t respond, sometimes an action for declaratory relief has to be filed, so a judge can provide notice to individuals and declare that the mortgage is satisfied of record based on the chain.
Errors in the Legal Description
A title issue that frequently comes up is an error in the legal description. A title search may reveal that the legal description doesn’t match up with the prior chain or the property appraiser’s legal description.
If the error is just clerical, generally an affidavit from the person who prepared the deed will be sufficient to address the issue, recorded to fix the chain of title. Other times, if the error in the legal description is material, meaning the wrong neighborhood, plat book, or legal description, an action to quiet title is probably needed to get that issue corrected.
There are also actions to have the legal description reformed, but it’s probably more appropriate to have an action to quiet title to address that issue. The lesson here is to build the cost and time to repair these title issues into the purchase price.
