When it comes to real estate transactions, there are often title issues that must be cleared up in order to transfer ownership of the home from the seller to the buyer. Does the seller have the legal right to sell the property? Is the home’s title free of liens that would prevent the seller from transferring a “clear” or “marketable” title to the buyer? How can you be sure? No matter how small a problem it may be, any title issue will need to be resolved in order to offer a clear title to the buyer. This article identifies the potential issues with property ownership and suggests methods to resolve the title concerns.
What Is a Clear Title?
A clear title is a title without any type of lien or levy from creditors or other parties that would pose a question as to legal ownership. For example, an owner of a home with a clear title is the sole undisputed owner, and no other party can make any kind of legal claim to its ownership. A clear title is also called a “clean title,” a “just title,” and a “free and clear title.”
A clear title is necessary for any real estate transaction because it firmly establishes who is the property owner. Title companies must do a title search to check for claims or liens of any kind against a title before it can be deemed clear. Erroneous surveys and unresolved building code violations are two examples of blemishes that can make the title “dirty.”
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How does Clear Title Work?
A clear title helps to show whether there are any outstanding financial responsibilities attached to the property and is necessary to demonstrate that an owner has the right to sell the property. The sale of a property can be disputed if legal ownership is not represented through a clear title.
The presence of liens can create a cloud on title, which is when a claim or an unreleased lien invalidates or impairs the owner’s title to the property.
For example, the current owner may still owe payments on an outstanding mortgage or owe contractors for refurbishment work they performed on the property. The title would not be clear, and the new owner would then be held responsible for resolving those liens.
Once a title is cleared, the deed can be registered in the homeowner’s name. The deed is the legal document showing who owns a property. If someone is buying a home, the title must be clear before the new owner’s name can be put on the deed.
It’s important to note that a property could potentially be sold while liens are active. The law doesn’t require liens to be removed before the sale of a property. However, the buyer wouldn’t be able to get a mortgage or home equity loan, because the bank would research and discover the past liens, which would have to be cleared for the financing to go through.
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Steps on How to Establish Clear Title for Property
A title to property could have many potential problems, but the two most common are liens placed on the property and potential boundary disputes. To find these problems, you should have a title report created by a title insurance company. To release a lien, you must pay the underlying debt, and in order to settle a boundary dispute, you should discuss potential options with your neighbor.
Step 1: Studying a Title Report
Contact a title insurance company. Title insurance companies can provide “title reports,” which are created by scanning the files at the Recorder of Deeds office to find information about the piece of property. As part of the title report, the company creates a chain of title, tracing back the ownership of the land as far back as possible. You can find title insurance companies in the following ways:
- Check-in your phone book under “Title Insurance.” There should be a list of companies.
- Search online. You can do a general search for “title insurance company” and “your state” or “your city.”
- Ask your realtor for suggestions. Realtors will know of reputable title insurance companies.
Step 2: Purchase a title report.
A title report is your protection against unforeseen issues with a parcel of land you wish to buy. It contains the results of the title search, including the legal owner, the legal description of the property, and any problems clouding the title such as liens and encroachments. Purchasing it and examining the preliminary title report closely is essential, as it’s one of the most important documents that you as a buyer will receive.
Step 3: Identify problems in the title.
The title report can reveal unknown problems with the ownership of the land. For example, someone might have put a lien on the property. A lien is a public notice that the property owner owes someone money, and it can prevent the property from being transferred.
Common title problems include:
- Unpaid Home loan
- Unpaid taxes. A lien can be placed on your property for unpaid federal taxes or unpaid property taxes.
- Court judgments. Sometimes liens can be placed on a piece of property when the property owner loses a lawsuit but doesn’t pay the court judgment.
- Mechanic’s liens. People who perform work on the property can file a lien if they don’t get paid.
- Encroachments. There could be boundary disputes involving the property.
- Unknown easements. An easement is a right to use someone’s property for a certain purpose. For example, sometimes a neighbor will have an easement to use their neighbor’s backyard to reach a parcel of land. A title report can reveal easements that have been recorded on the property’s deed.
Step 4: Buy title insurance.
Title insurance can protect buyers from problems with the title. It is often included in the closing costs. If you are sued because of a lien or because someone else claims title to the property, then the insurer will defend you in the lawsuit and payout money to you up to the policy limit.
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What Steps Should You Take to Get Rid of Your Lien?
- Not all liens result in having your home or property taken away, but it’s still important to be aware of what’s going on. In all cases, it’s important to deal with the problem head-on, rather than letting it build up and become a bigger issue.
- In addition to the types of liens listed above, there are other ones known as a quiet title and an involuntary lien. In the case of a quiet title, it’s because a lien was incorrectly placed on your property.
- You’ll need to go to court to show that you aren’t liable for this lien and it was put in incorrectly. With the help of a lawyer, you can easily prove this, and get your property restored to a lien-free state.
- If you’re selling a home, it’s typical to deal with a safety involuntary lien. In this case, it’s not a judgment against you, but having one does scare buyers off, making your home that much more difficult to sell.
- It’s in your best interest to pay off the remaining amount and not have to deal with the lien. You’ll encounter fewer problems and questions once you do so with both the buyers and their closing attorney.
- If you have any other types of liens, look at what they are and figure out your options. You essentially have four ways of handling property lien issues.
- You can choose to pay off the lien. If you have the money and know this debt is yours, this is the best choice and the quickest way to make the problem disappear.
- If you don’t have money but think there’s a way to come to an agreement, make an attempt to settle. You’ll sometimes need to go to court for this, but it’s better than not addressing the problem and most companies work with people.
- If the lien was never yours, have it corrected. Get ready to show proof that you aren’t responsible, and you shouldn’t experience major problems.
- Finally, if you don’t agree, you have the choice to dispute. This often requires some extra-legal help, but it’s a worthwhile choice if you don’t believe you should pay the full amount the lienholder is asking for.
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Do You Need to Hire a Lawyer to Clear the Title on Your House?
Although it is very much possible to clear a title yourself, it is advisable to seek professional advice from a lawyer (such as our friends at Ohio Foreclosure Lawyer) as they will be in a better position to guide you on matters that are complex and difficult to navigate.
Even though some house sales can close without clearing title, clouds such as mortgage, construction and judgment liens can lead to foreclosures and lost money. Other title issues, such as a property line dispute, can create closing headaches if you decide to resell your property. A buyer should drop into a local lawyer’s office and get some expert advice before agreeing to buy a house without first clearing its title.
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