Title Issues Holding Up Your Transaction?
By Mark J. Bainbridge
With the challenges present in today’s real estate market, title issues may be the last thing on your mind. But they do come up and it is important to know how to handle them. First, by “title issues” I am generally referring to any issues that cloud title to a property or otherwise hold up the transaction because of title, liens, encumbrances, assessments, etc. Chances are the title company servicing the transaction will make the discovery, though sometimes it is the parties themselves. In any event, the first thing one should do is understand the problem.
Understanding the Problem
Was there a defect in the signature of a prior deed in the chain of title? Has a mechanic’s lien been recorded against the property? Is the HOA claiming a lien right or condition on the property that must be remedied? Is a neighbor claiming adverse possession or a prescriptive easement over the subject property? All of these things can create a cloud on title that must be resolved for title insurance to issue and the transaction to proceed. Once you understand what the problem is, you can then try to resolve it. If it is something as simple as a signature needed, the parties may be able to remedy the situation through cooperation.
If it is something more complex, then it may be wise for the seller to examine their title insurance policy (i.e. the one they presumably obtained when they originally bought or refinanced the property). Most title insurance policies only cover “matters of record”. Essentially, this means that if there is something that requires physical inspection of the property to discover, then there may not be title insurance coverage. Of course, there are exceptions, endorsements and other legalities that can affect coverage. It is important for the seller to consult with legal counsel to determine coverage issues. Assuming there is coverage for the title defect, then the insurance company should take steps to resolve the situation.
Quiet Title Action
If the title company correctly denies coverage, then the seller may have other options. The deal could be renegotiated with the buyer assuming the title problem. Or, the seller could file a quiet title action in court. A quiet title action puts a disputed title claim to a court to decide. A court order, or judgment, can act as a deed or conveyance of real property or can clear up other issues that may be holding up the transaction. Of course, a quiet title action, like any court proceeding, can take time and money. Sellers should consult with an attorney before embarking on a quiet title claim.
There are also a variety of other, sometimes creative, ways to clear title and get the transaction going again. Mark J. Bainbridge is the founder of The Bainbridge Law Firm, L.L.C., a real estate and business litigation firm in Phoenix. Ph: 602-902-1930.