A critical step for the sale of any home is the review of the property’s title report. A buyer, their mortgage lender and the title insurance company will want to review the current title history of the property to make sure that the next buyer can purchase the property free of any unnecessary liens and encumbrances. Property taxes are an ongoing lien that cannot be removed, and there are many title restrictions that will stay with the property if it has easements, condo restrictions or other agreements with neighbors or municipalities. However, there can be a host of nasty surprises on a home’s title report that need to be cleared up prior to the sale of a home. If you are looking to sell your home, it is essential that you get a look at a current title report and resolve any outstanding issues that would be a roadblock to a successful sale.
What is a title report?
A title report is researched and issued by title insurance companies. They scan the index of files at the local county recorder’s office and match up recorded documents to particular parcels of real estate. By looking at the title history or “chain of title,” they can determine what sort of liens have been satisfied and which ones remain. A title report is a summary of all potential issues found for a particular seller and parcel of real estate at a given point in time. Obviously there could be new items filed at the county after the report is researched, so throughout the purchase process, the county records will be re-checked and verified to ensure that nothing new has come up.
What sort of issues could be present on a title report?
I have reviewed hundreds of title reports and most of them show nothing out of the ordinary. A typical title report will show the current property tax assessment and status of tax payments. It will also list any unsatisfied mortgages on the property and their original balances. It is also pretty common to find utility easements or covenants and restrictions for a condominium or subdivision. However, every so often, there are some unwelcome surprises. Here are a few that I have seen recently:
- IRS tax liens – The IRS can attach a lien to your real estate if you do not pay your taxes. In order to remove the lien, the IRS needs to be paid their back taxes.
- Unpaid property taxes – If your property tax payments are delinquent, this will show up and needs to be paid prior to sale of the property.
- Judgments – A home owner may have judgments against them attached to their real estate. This could be for unpaid child support or other unpaid creditors that went to court to obtain a judgment. The lien won’t be removed until the financial obligation is paid off.
- Contractor or mechanics liens – Unpaid contractors like roofers or painters can file a lien against the property for work they performed that they were not paid for. The lien isn’t satisfied until their bill is paid.
- Identity affidavit – As part of the title review process, they attempt to match judgments listed in county records with the names of the seller. If you have a common name like “John Smith,” you may have judgments appearing for John Smith that may actually be a different person. To resolve this, you will be requested to fill out an identity affidavit to verify that you are a different person.
- Encroachments – There may be evidence in title records of unresolved encroachments or boundary line disputes.
There are a lot more examples, but these are some of the common ones that I have seen.
Resolving title issues prior to sale of a home
Some title problems can be resolved simply on the closing day. If there is an unpaid property tax payment, the escrow company will simply make that payment and deduct it from the seller’s sale proceeds. However, in many instances it is better to proactively handle these issues early in your sale. Some of them can be embarrassing, such as tax liens or unpaid child support, so if you can get them removed before a buyer shows up, they will never appear on the title report. Others can take a significant amount of time to resolve, as it involves weeks of bureaucracy and chasing down the correct person to record a satisfaction document with the county.
If you are selling a home and find an issue that needs resolution on your title report, contact the title company to ask what needs to be filed at the county to resolve the issue. Then contact the party that has the lien on your property and work with them to get it removed, which may involve paying old debts. Sometimes the debt was paid long ago, but the property notice of satisfaction was never filed, so it may be as simple as getting that recorded. Either way, resolving these items early in the process will avoid delays in your closing and potential embarrassment when working with buyers.