Understanding Your Title And Title Insurance

The Importance Of Having A Clear Title Prior To Buying A Property

Having a clear title means that there are no encumbrances or liens on a property. There may be an encumbrance in the sense that there could be a recorded easement or right of way, which are not illegal, per se, but could create potential concerns to a buyer. It could also potentially raise concerns with a title insurance company, depending on the purpose of it, how it has been in existence, and other matters.

A clear title is going to tell you that there are no inconsistencies in the chain of ownership of the property. It will also tell you that there aren’t any other tax liens or other types of liens that may exist out on that property. The current owner may not have paid their sewer bill for four years and that will be a lien-able charge in a lot of municipalities.

If the property was sold without a title search and there was a lien filed by the municipality for those unpaid bills, that would then be a cloud on the title and the new owner can buy it as is. The new owner would then be responsible to pay the previous owner’s outstanding sewer bills because the lien existed at the time they took ownership of the property.

A title search would allow the buyer to require the seller to clear up that lien as a provision in the purchase agreement. Without a title search, the buyer isn’t going to be aware of the lien in order to ensure that it’s been cleared prior to the sale.

Common Issues That Impact Titles That Could Hold Up Your Real Estate Transaction

Some of the most common issues that can arise with a title that will ultimately delay your transaction are:

• Tax liens,
• Municipality liens,
• Properties still in the decedent’s name,
• Easements,
• Encroachments, and
• Deed restrictions.

Tax liens and municipality liens could fall to the buyer to pay a hefty sum if they aren’t able to locate the previous owner who accrued the unpaid taxes or municipalities. In the simplest cases, the previous owner – the seller – would be the responsible party and would have to pay off any liens prior to sale. Depending on the amount, this could definitely delay your transaction.

When purchasing a property that is part of an estate, you may run into the issue of the property remaining in the name of the deceased. If there was no will or executor and no relations designated to administer the estate, this will create a serious delay. You would have to resolve the issue of ownership in order to get a clear title in order for title insurance to be rendered for the property.

Easements or encroachments could potentially create issues, though it would depend on what they are. For instance, if you have a maintenance easement on a shared driveway and the other party that you share it with doesn’t have any resources to maintain the driveway, you have to think about what you’re buying into.

While it isn’t something that would necessarily prevent you from getting title insurance, it can still be a risk to purchase a property with an easement or encroachment. You could still buy the property if you are willing to pay for that maintenance yourself and both parties could benefit, but not every buyer has the funds available to agree to that.

Each easement or encroachment is fact-specific and property-specific, so you would need to review and understand them in order to make the best decision for your situation. Oftentimes, these can derail your sale or purchase.

Deed restrictions are another thing that aren’t illegal but could certainly negatively impact your transaction by restricting your ability to use your property in the way you’d like. For instance, if you’re somebody who likes to work on small motors or cars in your garage and your property is in a community with deed restrictions and covenants, they might prohibit you from doing what you’d envisioned with your home. Homeowners’ associations can sometimes be pretty intrusive and can even prohibit the construction of detached exterior buildings or other exterior things.

If your dream was to buy a home and put up a detached garage so you could work on cars, those deed restrictions and covenants would prevent you from realizing that vision and ultimately persuade you not to purchase that particular property.

A title search can let you know that before you get in a circumstance where your deposit is committed. You will potentially have a way out and can choose not to purchase the property. Ideally, you would know these things a little bit before you’ve even made an offer.

Title Insurance: What It Is And Why You Need It

Title insurance helps to protect the new buyer from any defects and deficiencies that may exist prior to the time they take ownership. The lender will require title insurance any time a buyer is seeking financing to purchase a property.

The title insurance is insuring any activities that occurred prior to the completion of the title search. Going forward, if the new owner does something that impairs the title, they may invalidate their own title insurance. Even if they don’t invalidate their own title insurance, they’re certainly going to create a situation that will come up in a subsequent sale. That may or may not prohibit the sale or the sale would have to proceed with that particular item being excluded from title insurance coverage.

The coverage of the title insurance is what protects the owner of the property overall, which would include the house. This isn’t for home defect issues, but for the title of the property. If you bought the property being conveyed from party A to party B and you’re party B, you want to know that you have a free and good title. You don’t want to owe party A’s taxes or sewer liens when you purchase the home. You want all of that to be resolved as a part of the title search and obtaining title insurance.

Rerunning The Title: When And Why

In the state of Pennsylvania, you submit your fully executed sales agreement to a title agent. This is the point at which they’re going to run the title report, usually within the first week. The reason for that is that you need to know upfront whether or not there are issues with the property before the sale is finalized.

Once you make an agreement of sale and you propose a sales price that the buyer and the seller both agree upon, that’s the price for the property barring contingencies that may or may not be selected in the agreement of sale. The sooner you run the title report, the sooner you can identify their liens and anything outstanding items requiring resolution.

The agreement of sale will talk about the seller providing a good marketable title. The title wouldn’t be good if they had a $100,000 IRS lien against the property that they were unable to pay off unless the buyer, for whatever reason, chose to pay that off. That typically doesn’t occur, of course.

Typically, you’re trying to avoid incurring any additional costs or expenses for both parties if the property is potentially problematic right off the bat. The title search tells you what, if any, issues exist and if you can’t get those resolved, it isn’t really a saleable property.

The Title Report: How It Benefits The Buyer And The Seller

It’s important for the buyer to have some knowledge about the property they’re intending to buy. Things that the title report may reveal that the buyer needs to know may include…

• Deed restrictions,
• Easement,
• Maintenance agreements, or
• Liens.

Knowledge of any issues is the first step toward reaching resolution that will put their mind at ease moving forward with their purchase. Sometimes, knowledge of an issue will help the buyer determine that a property isn’t the right one for them, which is equally as important.

It’s also important for the seller to review the title report. There are many cases in which a property owner is unaware of a tax lien against their property, for instance. This could be due to the mail service being unreliable to their area or even that a small child threw out a notice that their parents never got a chance to review. In these situations, it’s typically rather easy for the seller to pay the lien out of the proceeds of the sale, thus clearing the title.

With the guidance of a skilled attorney for Real Estate Law Cases, you can have the peace of mind that comes with knowing that we’ll make it look easy.

For more information on Real Estate Law in Pennsylvania, an initial consultation is your next best step. Get the information and legal answers you are seeking by (717) 990-7178 today.