Lyons Title & Trust
Prior to closing on a property sales transaction, buyers are given a Title Commitment document by the title company. The Title Commitment details what the title company plans to cover (and exclude) under the Buyer’s Title Insurance Policy it plans to issue, following a thorough examination of the public records concerning the history of that property (known as a chain of title.)
The Title Search
During that search, any defects or “clouds” on the title are revealed, such as assessments or liens, judgments or unpaid tax bills, unsatisfied contractor’s liens, incorrect signatures or notary stamps or even fraudulent documents. Until such defects are corrected, a clear title cannot be issued for the property, though the title company may decide that the defects are small enough to still render the property insurable.
Usually a Title Commitment doesn’t make use of a comprehensive title search all the way back to the original grant of the land and therefore the Commitment doesn’t make use of a complete Abstract of Title. Therefore the Title Commitment doesn’t indicate definitively that the buyer will never face a problem with the title—thus the need for title insurance, which protects the buyer for the entire time they own the property from financial loss due to a defect undiscovered in the initial title search. The title company will also accompany the buyer to court in the event of any future title challenge.
The buyer is allowed to review the Title Commitment for several days. They are encouraged to talk to an attorney or the title company, if they have any questions on any of the information on the Commitment. They then can, within that limited time period, let the seller know if there is anything unacceptable to them in the Title Commitment and try to reach an agreement with the title company to modify or delete the unacceptable provision so closing may proceed on schedule.
Title Commitment documents are more fully explained at www.alta.org.
A title that is called a Marketable Title is one that corresponds to a particular piece of property that shows a chain of ownership that is clear and free from “clouds” or defects.
Since a search of its history shows nothing likely to pop up (such as a undiscovered existing mortgage or unpaid tax bill) that may cause the new buyer of the property trouble in the future, a Marketable Title means it can be marketed for sale with no additional effort by either the seller or potential buyer.
Marketable vs. Insurable
If a defect (or defects) are found in the title search, a title can become Insurable as opposed to Marketable. That means that rather than fixing the defect (probably an expensive and time-consuming process), a title company may agree to insure against any problems that the discovered defect may cause in the future.
To be clear, the title insurance company agrees to fix the defect if it ever becomes an immediate problem. Some defects never become a problem (or threaten either the ownership or value of the property) so the title company (in the business of risk management) would rather defer that risk than correct it.
But a buyer should accept such a title with a clear idea of what risk they are taking on. Though the defect found in the title of the property to be purchased may not threaten trouble during the time period the buyer owns the house, it may prove true that when the house goes up for sale again in the future, the next buyer in the chain may not be willing to accept an Insurable Title and insist on a Marketable Title.
Be sure to discuss the difference in these two titles as regards any property you are considering purchasing with your title agent and be certain that you know the type of title the seller intends to convey before you sign a purchase contract.
For more on the differences between a Marketable and Insurable Title, visit www.alta.org.
A “clear title” is a title that is free of legal questions and liens as regards the ownership of a residential or commercial property. A requirement for the sale of a property, a clear title may also be called a “good title,” a “free and clear title” or “one name of title”.
A clear title for a property is one in which all public records regarding the history of the property for sale have been searched by a title professional for any flaws and none have been revealed in that title search. Or, if defects have been revealed, only after the issues have been dealt with is the title is considered clear.
The Title Search
Records such as judgments, liens, tax records, utility assessments, estate documents or levies are some of the documents searched during this process, as is any other information recorded with municipal and county facilities or stored in information data centers called “title plants”.
The object of the search is to find out if any defects or “clouds” exist that encumber the title and that could affect the new buyer’s rights. Defects such as an undiscovered mortgage, an unpaid tax bill, a boundary dispute or an unsatisfied lien must be dealt with before the property can change hands. A clear title is mandatory to complete the transaction.
Title insurance in the form of Owner Title Insurance is available to protect the rights of buyers after the purchase in the event that some defect that remained undiscovered during the title search crops up later, possibly throwing the clarity of the title into contention. Title insurance provides peace of mind to the purchaser who will be protected from loss and legal fees from such title defects for as long as they own the property, no matter when the defect is revealed. The title company will even accompany the insured into court if needed for a title challenge Lender Title Insuranc is also available to protect the investment of the mortgage lender.
For more information about clear titles, visit www.alta.org.
Title Inheritance is an area of real estate transactions best explored with an experienced real estate attorney. To reduce such a complex subject to a brief article may not address the complexities of your own title inheritance situation.
Having said that, real property with a clear title may pass to an heir or devisee if the previous owner has gone through the probate process in the county in which the property is located. The title must be examined by a title agent, searching for any defects in the title, (judgments, liens, mortgages, unpaid tax bills, etc.) for at least 60 years back. If the land did not pass by virtue of having been probated or if any defect is found, there is a “cloud” on the title.
Is probate always necessary?
In most states, if the decedents signed no title to the heir, the property may only be passed to the heir via probate. When a person dies owning real property, the title must be passed through the estate, via a formal probate, and a Deed of Distribution entered into the public record. Any estate where the deceased died 10 years earlier can’t be probated. In that instance, a Determination of Heirs action has to be instituted to pass title to the heirs. The court order will act as the deed to be passed along to the heir.
However in some states (Hawaii, Illinois, Nebraska, Nevada, North Dakota, Oregon. Arizona, Arkansas, Colorado, Indiana, Kansas, Minnesota, Missouri Montana, New Mexico, Ohio, Oklahoma, Wisconsin and Nevada), asset-specific wills substitutes for the transfer of property at death. The owner may designate beneficiaries to receive the property at the owner’s death without waiting for probate.
The Uniform Real Property Transfer On Death Act
ALTA (the American Land Transfer Association) explains, “In an effort to simplify the transfer of property to a beneficiary on the owner’s death without probate, the Uniform Law Commission in 2009 promulgated the Uniform Real Property Transfer on Death Act (URPTODA).
Under URPTODA, real property passes by means of a recorded transfer on death (TOD) deed. URPTODA establishes the requirements for the creation and revocation of a TOD deed and clarifies the effect of the TOD deed on all parties while the transferor is living and after the transferor dies, the title passes directly to the named beneficiary without probate.
Some requirements include:
- The TOD deed must state that the transfer to the beneficiary occurs on the transferor’s death and must be properly recorded during the transferor’s lifetime in the office of the recorder of deeds where the property is located.
- A TOD deed does not operate until the transferor’s death and remains revocable until then.
- Until the transferor’s death, a recorded TOD deed has no effect—it does not affect any right or interest of the transferor or any other person in the property. “
For more information on TOD, click here. Remember it is best to discuss your title inheritance situation with a real estate attorney.
Clouds on Title
The term “clouds on title” means any defect affecting clear title to a property found by examining the public records concerning that property’s history (or chain of title.)
A title agent examines county and municipal records and documents in the data information storehouses maintained by the title companies (known as “title plants”). The agent is searching for any cloud or defect that could lower the value or marketability of that title, by allowing a prospective buyer to know they are taking a risk purchasing the property, as the grantor may not be able to convey a clear title.
Such defects or clouds may include a misspelled name, undisclosed heir, disputed boundary, unpaid tax bill, unsatisfied lien or a judgment or pending lawsuit against the property, among other hazards. Until such defects are remedied, the title cannot be considered clear and may postpone closing of the sales transaction or even cause the buyer to back out and the transaction to fall through.
Title insurance protects you
To avoid any problems concerning the property’s title disclosed after the closing, title companies offer Owner Title Insurance policies, protecting buyers from financial loss in the case of something cropping up from the property’s history that had been missed in the title search. Title companies will even accompany the insured to court in the event of a challenge to the title. A mortgage company will often insist on Lender Title Insuranc Policy to protect its own investment in case of such defect discovery in the future.
If a cloud or defect cannot be cleared, a lawsuit known as an “action to quiet title” may be brought in court to determine who really holds ownership of the title and “quiet” any further challenges or claims to the title.
More information about clouds on a title may be found at www.alta.org.
Title & Closing Fraud
Title & Closing Fraud have become larger problems as modern technology has made it ever easier for fraudsters, armed with the necessary documentation and knowledge of the industry, to perpetuate real estate frauds of all types.
How do Title & Closing Fraud happen?
Let’s start with the basics:
The title is the document that proves your legal ownership of your property by being placed in your name. You obtained the title when the seller signed transfer documents, a deed transferring ownership of the property to you. When that deed is recorded, the public records show you are the owner and anyone searching those public records can find out that information easily.
Armed with that, a fraudster can steal your identity as the legitimate owner of the property. An example might be that the criminal then “sells” the property to an unsuspecting purchaser who has managed to get mortgage financing. The new “buyer” moves into the property. You, as the real owner, have to evict the new “buyer”, go to court to defend your title and may find yourself responsible for any new mortgages the crook took out on the title under fraudulent circumstances.
There are many types of fraud. Another scenario is when a spouse mortgages a property for their own benefit with an accomplice impersonating their spouse. Such a con is common enough to even bear the title “spousal fraud.”
Another scenario is when a lawyer obtains an equity loan on the property and absconds with the funds. The title of the property may have even been transferred into the name of a new purchaser, but the property remains subject to the prior mortgage.
Credit reports can be run online and thieves love to target people with good credit. If your mortgage is paid off, all the better. That means the fraudster can apply for an even larger mortgage in your name. Notaries can be bribed; signatures forged; and vital records can go missing. Surveys can be faked and home inspection scams became a cottage industry in the early 2000’s.
The role of title companies has become even more critical in these perilous times. Both homeowners and lenders can protect themselves by obtaining title insurance from a reputable title company. Title insurance policies protect innocent homeowners and lenders who might otherwise face financial losses from such fraud.
A one-time payment purchases title insurance coverage that covers the entire period the homeowner owns the property and the lender holds the mortgage and, when the claim is covered, the title company will pay the legal fees, costs and expenses related to having the title restored to the insured that they lost due to fraud.
For more information real estate fraud, click here.
What constitutes Insurable Title?
In order for any property, residential or commercial, to change hands in a sales transaction, a title agent must perform a title search. What they find will determine if a title is Insurable or Marketable.
The agent looks through all public documents available, detailing the chain of title (or history) of the property, searching for any defect. A defect (or “cloud”) may be an unsatisfied tax bill, a boundary dispute, an undiscovered mortgage or a myriad of other things that might cause a problem in establishing a clear (free of defect) title of ownership to the property.
If a defect (or defects) are found in the title search, a title can become “Insurable” as opposed to “Marketable”, which is what a title is called when it is entirely free from defects and can be marketed for sale with no additional effort by either the seller or potential buyer.
A title company, in issuing an Insurable Title, agrees to fix any defect if and when it becomes enough of a problem to threaten either the ownership or value of the property.
Since some defects never become a problem during the buyer’s ownership of the property, those defects remain unaddressed.
But a buyer should understand the risk they assume by accepting an Insurable rather than a Marketable Title. When the property next goes up for sale, the next buyer in the chain may insist on a Marketable Title, as opposed to one that is an Insured Title and the discrepancy may jeopardize the sale.
As a buyer, you should discuss with your title professional what type of title the seller is providing for the property in which you are interested, before you sign a purchase contract.
For more on Insurable vs. Marketable Titles, visit www.alta.org.
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