Typical clouds on title such as old service liens, encumbrances, easements, or missing conveyances can become serious problems that grind your file to a halt. These potential problems should be identified early by the title agent or by your escrow officer, but it is good policy to familiarize yourself with the issues that can affect your closing. Some items can get missed in the hustle and bustle of juggling multiple originations.
During the peak of the foreclosure crisis, homeowners were scrambling to save houses in default by any means possible. Some of the techniques employed included filing UCC liens, deeding over the property to a relative or third party, or filing bankruptcy against the property. While the techniques may or may not have helped, some of those title clouds still exist in the marketplace and must be dealt with before the title insurance policy can be issued.
Other issues may be more innocuous but can be just as disruptive to the process. Missing signatures on previous title transfers, deceased title holders, mechanic’s liens, HOA dues, tax liens, or judgments all can be resolved but must be identified early and worked through before the file gets too far along in the process.
Many title problems will be caught and resolved by the title agent, but some will require the originator to work with the seller or borrower to fix them before they cause a delay. If there are problems that could slow funding, bringing them out into the open with the client will allow you to quickly resolve them and ensure they do not get blindsided with an unexpected delay. If there are more serious issues that cannot be solved by the title company, then the owner may require legal help to ensure the title coverage is intact and complete. Certain liens or encumbrances may expose the owner to future litigation, and an owner should consult a competent real estate attorney to help resolve those issues immediately.
Clearing title is a process that is sometimes taken for granted, but there may be instances when an owner will be unable to obtain title insurance based on a title cloud. When that situation arises, a quiet title action may need to be initiated so a court can clear up the title issue. A quiet title allows an owner to submit a disputed title claim to the court, present evidence, and allow the court to clear any encumbrances or blots on title. The action can be costly and time-consuming, but an owner should be aware than until serious title issues are corrected, they will not be able to close a sale or refinance the property.
Lenders should work to catch title problems early. If something on title is concerning, it should be addressed proactively with the title agent, your attorney, and/or the borrower. Most problems are fairly simple to overcome, but even the most complex title issues can be surmountable if discovered early.
If you have any questions about avoiding funding delays, reach out to Geraci Law Firm here.
About the Author
Lindsay Anderson, Esq., is a Banking and Finance attorney at Geraci LLP. She has experience preparing commercial, residential, and construction loan documents. Her practice focuses on representing nationwide mortgage companies and private lenders in all aspects of real estate transactions by advising on transactional matters.