7 Common Title Issues
Anyone questioning whether the value of title insurance is worth the cost should understand the risk they are taking. It falls upon us, as title agents, to education the buyers (and/or borrowers) of those risks, whether it be how title insurance works or what it covers. Here are some of the common title issues covered by expanded title insurance that title examiners can share with those skeptical buyers:
- Flaws in Formalities – Does your state require two witnesses and a notary for the donation of real property, but there happens to only be one witness signature on a donation made two links back in the chain? This is a serious issue that could mean the donation was invalid and that the alleged “Donor” still owns the property. Maybe the Donee also invalidly signed as a witness. Or, maybe the Donor failed to recite the cause or consideration for the Donation as required by state law. These are just a few examples of potential flaws in the formalities of the transfer that affect who actually owns the property.
- Wills & Successions – It may sound far-fetched that an heir is left out of a succession proceeding without proper notice until you have worked a lot with successions. For example, it is not unheard of to come across a matter where children of a decedent finalize their parent’s succession without knowing that their parent had another child. In that case, the newly discovered heir may have the right to reopen the succession and stake claim to an interest the estate, or at a minimum could make a claim of improper notice that could cause time and money to remedy.Wills also fall into this category. Imagine, the title examiner relies upon a succession proceeding that has been properly conducted and recorded. Then, years later, a more recent Will by the decedent is uncovered and it changes everything. Perhaps, the new Will left the subject property to someone other than the seller who sold the property, or the Will granted a servitude to a third party and it is still valid.
- Mis-indexed Documents – Although we don’t like to admit it, the legal system, including County clerks and recorders, happens to be run by humans. Humans can make mistakes. Humans can make typos and POOF!… there is a title issue. For example, a creditor records a judgment against a “Lyndsey Ballard”, the same Lyndsey Ballard selling the property. But when indexing the document, the deputy clerk types it into the records system, “Lindsey Ballard”, so that a search of the correctly spelled name would not uncover the judgment. Unfortunately, the judgment would still affect the property and when this is uncovered years later, title insurance will protect the buyer from having to pay that judgment out in order to sell the property.
- Boundary and Survey Discrepancies – Title issues can arise under this category when the survey on the subject property may conflict or overlap with a survey that was done on another, adjoining property. So, it’s possible that a thorough title search would confirm that the subject seller owns the property she is purporting to sell, while an adjoining property owner could still make a legitimate claim to an interest in the property. The only way this would have been discovered is if the title examiner had run title on every surrounding property – a unrealistic task in light of the exorbitant cost and time delay this would cause, to say the least.
- Authority – Issues with improper authority are common. In the case of a non-living entity like an LLC, Corporation, or trust, the entity has to designate a living individual to sign on its behalf. Whether this is done in accordance with their bylaws, agreements, or otherwise is often not obvious especially where the transfer occurred back in the chain. For example, a shareholder could bring a claim that the property authority was not granted to the individual who signed transfer documents on behalf of the corporation, jeopardizing the validity of a prior transfer.
- Uncancelled Liens & Mortgages – Liens and mortgages may have been paid off but never cancelled. The title examiner has no way to confirm that the lien or mortgage was paid without confirmation from the lienholder or mortgagee. Go figure, some lienholders and mortgagees who have already been paid and have moved on, have no incentive to cooperate with the title examiner’s request for information or cancellation. Even if the debt has been paid, the uncancelled lien or mortgage creates a cloud on title. If the owner has title insurance, the title agent may be able to easily close without the need to officially cancel the lien or mortgage.
- Forgeries – This may speak for itself but unfortunately, humans are also capable of transgressions like fraud. Title issues arise when someone poses as someone they are not and falsifies or forges documents. Again, this is something that a title examiner may have no way to catch but has dire consequences for the title to the subject property. Only title insurance can mitigate those consequences.