An Inside Look at Judgments and Title (And How They Impact Closing)
By Barbara Pronin
The sellers have made the recommended repairs. The buyers have secured their loan. Your latest transaction appears to be on track for a smooth and timely closing. But like an athlete treading water in a calm sea, there is a lot going on beneath the surface. Is the property title free of ‘clouds’ or ‘defects’ (judgments, liens or bankruptcies)? Is there anything else that would prevent the sellers from transferring ‘clear’ or ‘marketable’ title?
Your buyers may be discussing paint colors and imagining their furniture in their new home. But like that athlete treading water, there is still a lot going on behind the scenes. Your title partner is thoroughly searching public records on the property – back to the date the lot was created, or if necessary, as far back as 1850 when California became a state – to discover any past deeds, bankruptcy filings, court judgments, or other issues that could delay or impede closing. Any such issues will need to be resolved before clear title can be given to the buyers.
Perhaps a mechanics lien has been placed against the property for work completed but never paid for – or maybe the bill was paid, but the busy contractor failed to remove his lien against the property. We might discover a tax lien, or an unpaid special assessment, or a child support judgment.
Let’s say, for example, that a divorced spouse either forgets or doesn’t remove a lien for child support, even though the debt may have been resolved years ago. The child inherits his father’s house and decides to sell the property. But a lien placed by his mother years ago, and since resolved, could show up in the title search and prevent the sale. The heir would need to have the surviving parent to sign a “release of judgment” that states the debt was paid in full in order to have clear title.
In all, there are more than 70 title issues that could delay or prevent a closing. Often, the sellers are not aware that a lien or encumbrance exists – but much of the work done by the title company involves verifying and, wherever possible, clearing any such defects.
It might take days or weeks to resolve any issues. Only once the work is done, and the preliminary title report has been cleaned up satisfactorily, can the buyers, sellers, real estate agents, lenders, and everyone involved be certain that the closing will be timely.
It’s also the reason why a title insurance policy is the best protection against title problems that may become known after the transaction is closed. The cost is a one-time only fee, and the policy remains in effect for as long as the buyers or their heirs have an interest in the property.
Barbara Pronin is an award-winning writer based in Orange County, Calif. A former news editor with more than 30 years of experience in journalism and corporate communications, she has specialized in real estate topics for over a decade.
This material is not intended to be relied upon as a statement of the law, and is not to be construed as legal, tax or investment advice. You are encouraged to consult your legal, tax or investment professional for specific advice. The material is meant for general illustration and/or informational purposes only. Although the information has been gathered from sources believed to be reliable, no representation is made as to its accuracy.
Reprinted with permission from RISMedia. ©2018. All rights reserved.