In 2022, nearly $22 billion in property taxes went unpaid in America. These unpaid taxes resulted in liens from the government placed on these properties that will exist on the property until they are resolved, regardless of who the owner is. If you purchase a home with a lien, you become responsible for settling it. Is that a burden you’re ready to accept?
Unpaid tax is only one title defect that could affect real estate transactions and derail property ownership. Many homebuyers don’t even know these defects exist before discovering them. Overdue taxes can prevent a clean transfer of ownership, causing significant delays, financial loss, or even a complete collapse of the sale. Understanding and preparing for common title defects is essential for a smooth closing process.
What Are Title Defects?
Title defects are issues with the legal ownership of a property that must be resolved before the sale can proceed. These defects can arise for various reasons, from simple clerical errors to more complex legal challenges.
When a title defect is found, it can delay or derail the transaction until the issue is resolved, potentially costing buyers and sellers time, money, and even the deal itself. That’s why title insurance is essential; it protects both parties from unknown title defects that could emerge during the buying or selling.
Here are the top five title defects that can derail a real estate transaction:
1. Unpaid Liens
A lien is a legal claim on a property, typically placed by creditors when a property owner owes money. Unpaid liens can prevent a clear title transfer. Liens can result from unpaid taxes, contractor fees, or outstanding judgments. Before closing, these liens must be settled. If they go unresolved, they will follow the property, burdening the new owner. Many buyers only become aware of these liens during the title search process, which can delay or stop the sale if the liens are substantial.
2. Easements
Easements are rights granted to third parties to use a portion of the property, typically for specific purposes such as utility access or roadways. While easements don’t always prevent a sale, they can complicate matters by limiting how the property can be used. For example, if a utility company has an easement that allows them to access and maintain a pipeline on the property, it could hinder future development plans for the buyer. Some easements are not documented, which can cause issues if discovered late in the transaction process.
3. Boundary Disputes
Boundary disputes over a title can occur when there’s confusion or disagreement about the legal property lines. This dispute can occur when neighbors disagree over where one property ends and another begins. Boundary issues can also arise from poorly conducted or outdated surveys. These problems occur when a buyer intends to purchase a specific amount of land but discovers that part of it is legally owned by someone else. Often, resolving boundary disputes requires new surveys or legal intervention.
4. Heirship Claims
When a property has been passed down through generations, there can be disputes over the rightful ownership, particularly if an heir claims they were left out of the will or if the estate was not properly settled. Heirship claims can stall or entirely block a sale, as the seller may not have the full legal right to sell the property until the dispute is resolved. A surprise heir can be typical with older properties or those belonging to one family for many years.
5. Errors in Public Records
Even a simple clerical error can cause a title defect. Errors in public records – such as misspelled names, incorrect legal descriptions of the property, or outdated information – can cause significant problems in transferring ownership. These errors may seem minor, but they can delay the process until the records are corrected. Buyers and sellers are often unaware of these issues until the title search uncovers them, making them particularly frustrating.
Can You Prevent Title Defects from Derailing Your Transaction?
The best way to avoid title defects is to work with a reputable title insurance company. During the buying or selling process, a title search will be conducted to identify any issues that could complicate the transfer of ownership. If a defect is found, your title company will work to resolve it before closing, making sure the property can be transferred without issues.
For buyers, title insurance provides peace of mind by protecting against unknown title defects that could emerge after the sale. This coverage can help prevent financial losses or legal battles if a defect is discovered later. Sellers also benefit by ensuring their property has a clear title before listing on the market, which can streamline the transaction process and avoid last-minute surprises.
Don’t Let Title Defects Catch You Off Guard
Title defects can be hidden obstacles in even the most straightforward real estate transactions. Working with a reliable title company and securing title insurance is your best defense against these unexpected problems, helping ensure a smooth and successful closing.
When it comes to real estate, knowledge is power, and being aware of these title defects can keep your transaction on track. Contact our agency today to secure your title and get the help you need.