If you have never bought or sold a home before, you may wonder what a clean or clear title means?
A clear title is a vital factor in real estate transactions. It means that there are no outstanding mortgages, liens, judgments, claims, or other encumbrances against the property.
If an owner of a home has a clear title, then no other party can make any legal claim to its ownership.
If there are any blemishes on the title, such as incorrect property surveys or unresolved building code violations, then the title may be considered “dirty.”
Title defects found on a property can slow down the closing process. Of course, a real estate agent like myself wants to know there is a clean title so I’m not wasting my time trying to sell an unmarketable home.
When you are buying a house and getting financing with a mortgage lender, they will require a clean title to proceed.
Let’s look at everything you need to know about having a clear title.
How a Clean Title Works When Buying a House
A clear title is essential to prove ownership and can be contested if legal privilege is not represented through a title. When liens are present on a property, it can create a cloud of ownership that can impair the title to the property.
The current owner may still owe payments on an outstanding mortgage or owe contractors for home improvements made to the property.
If the title to a property is not clear, the new owner would be responsible for resolving any liens. Once the title to a property has been cleared, the deed can be registered in the homeowner’s name.
Unless the title to the property is clear, the new owner’s name cannot be placed on the deed. All liens on the property must be released first when a mortgage lender is involved.
The law does not require liens to be removed before selling a home, but the buyer would be unable to get a mortgage or home equity loan. The bank would research and discover the past liens as part of the title search.
How to Check For a Clear Title?
Buyers and sellers can check property records at the local town hall or do an online search, but that is not customary. The public records will tell you what’s in them, but they won’t tell you everything.
You may need to check other records, such as building permits and zoning rules, to get a complete picture of what’s happening on the property.
Researching the title and other potential property issues are best left to the professionals.
When you get a mortgage, your lender will work with a closing agent, such as a title company, an escrow agency, or a specialized real estate attorney, to conduct a title search. Title searches are routinely completed by these professionals daily in real estate transactions.
When examining records, they know exactly what to do to discover any title blemishes.
They will look through the chain of title for previous owners to ensure there is a legal right to sell the property. Mortgage lenders need to know that there is a sole undisputed owner before providing financing.
When the title work is completed, a good title can be issued. A thorough investigation takes time.
It usually takes around two weeks for a title search to be completed.
What Are Common Examples of Title Issues?
Numerous title problems can be uncovered when doing a title search. Some of the more common examples of title blemishes include the following:
- Unpaid property taxes
- IRS liens
- Mechanics liens
- Zoning violations such as a property line encumbrance
- A forged deed
- A disputed will
- Divorce that is being contested
How Do You Solve Title Problems?
You may be wondering how to get a clear title?
Some title problems are easily solvable, while others take far more work. For example, monetary title blemishes are easily correctable when equity is in the property.
A financial lien can be squared away before closing.
Using the above examples, if a contractor who installed a new kitchen in a home for $40,000 was not completely paid, funds could be taken out of the seller’s proceeds to satisfy the lien against the property.
The same can be said for unpaid property taxes or Federal Government liens.
Something like a forged deed or boundary disputes might take more time and effort to correct.
Title specialists would need to be employed to fix this title problem before a clear title could be issued. In the case of land use encroachments, it may need to be settled in court, which could take time.
Other times a quiet title action may need to be completed. Quiet title actions are common when there is a disagreement with ownership rights.
A lawsuit is settled in court to establish ownership of a property. The suit is filed to remove or “quiet” an objection to the property title.
How Does Title Insurance Work?
When you purchase a home or other real estate and get a mortgage, the lender will require title insurance. It’s referred to as a lender’s title insurance and protects the lender if a title problem is discovered after the purchase.
The buyer pays for it as part of the closing costs. If the title search uncovers an issue with a document, there may be high legal costs.
The insurance will cover up to the mortgage amount if a title defect is discovered. A title insurance company provides title insurance. There are many well-known title insurance providers in the United States.
Homebuyers can also purchase their own title insurance. It’s known as owner’s title insurance.
Suppose you have an owner’s title insurance policy. In that case, the company will pay off any outstanding loan balance and your equity up to the purchase price if someone else successfully claims ownership of your property.
You can also purchase an inflation rider that will increase the amount of coverage if the value of your property increases.
Title insurance can vary in cost significantly, depending on where you live. In some states, title insurance is regulated by the government, while in others, it may be more beneficial to shop around for a cheaper rate.
When comparing insurance options, always ask for the “reissue rate,” which is a discounted rate that might be available in situations when the home was recently sold or refinanced.
Title insurance policies can help protect you if something goes wrong with your home, but they don’t always cover all possible risks.
Both Buyers and Sellers Need a Clear Title
Having a clear title is vital to both home buyers and sellers. When selling a property, having a clear title is essential to resolve any pending legal issues with the property.
If there are any liens, judgments, or claims against it, delaying the sale process due to unclear titles can be costly and frustrating.
It is challenging to purchase property without a clear title as a buyer. It’s possible, though, if you’re paying cash and don’t hire someone to complete a title search. Not doing a title search could be financial suicide.
You could very easily have issues in the future with claimants that come forward. There may be a contractor that is due money, as explained in the example I’ve given.
There could be an ongoing dispute with the neighbor on the location of the property lines. These are the kinds of problems you could face when a title search is not completed. Most folks don’t want to take on these kinds of liabilities when they don’t need to.
Final Thoughts on Having a Clean Title
Enjoying a clean title is a must when buying a home. Nobody wants to have the financial burden of taking on title issues that could have been resolved before the transaction was completed.
Having a clear and marketable title is a must when buying or selling a house. Real Estate closings go far more smoothly when there are no title problems.
You should now have a much better understanding of what it means to have a clean title.
About the Author: The above Real Estate information on what is a clear title was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at firstname.lastname@example.org or by phone at 508-625-0191. Bill has helped people move in and out of many Metrowest towns for 35+ Years.
Are you thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!
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