The transfer of title is a crucial step in the home-buying process. However, there are numerous components to a title, including title rights and potential flaws. Before you buy or sell a home, make sure you understand your obligations.
There are several ways to protect yourself from title defects before purchasing a home or other property.
A contingent offer is one that has been accepted but is contingent on certain conditions or criteria being met first. An appraisal, for example, is a type of purchase contingency.
Title insurance protects the homeowner in the event that someone later sues and claims they had a claim against the home before the current owner bought it. This could be due to unpaid property taxes or old home contractors. Most lenders require title insurance for potential buyers.
A title company’s first step is to conduct a title search, which involves looking for potential roadblocks to a smooth transfer of ownership.
The question of whether other people own or have rights to the property is often the first that comes to mind, but a title search also looks for the following issues:
Unless the previous house is owned free and clear, the present homeowner will have a mortgage tied to the property. This can have to be paid off at closing in order that the title will be transferred to you.
You may have a lien on the property for other things like a home equity line of credit or a loan to pay off solar panels, as an example. These will have to be paid off or otherwise removed before you’ll be able to close.
While this can vary depending on what’s written within the HOA contract, associations often give themselves broad powers in these agreements to put a lien on and even foreclose your property as a consequence of unpaid HOA dues. The dues of the previous owner will must be controlled one way or another before moving forward.
If the previous owner has some unfulfilled responsibility, they may be taken to court and the complaining party can win a judgment that stays with the property until the person is paid. One scenario where this might come up in homeownership is if a contractor wasn’t paid for work that was completed. If the IRS or another taxing authority places a lien on the property for unpaid taxes, they can collect proceeds in the event of a procurement. Both issues must be taken care of.
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