Your Guide to Common Issues, Red Flags, and How to Avoid Closing Delays
As a prospective homebuyer searching for the perfect place to call home, you may wonder: “What kind of property best fits my budget? Which neighborhood is ideal for my family? How will the home I purchase meet my needs for years to come?”
One question you may not be asking, however, is, “How could the history of my new home’s title affect me?”
That’s a critical question because significant financial and/or legal issues could arise due to undiscovered title problems from the past. Fortunately, title insurance exists to make sure that a home’s past doesn’t jeopardize its future.
The Importance of a Clear Title
As you may recall, a property’s title shows who legally owns it, while title insurance protects buyers and lenders from financial loss sustained from defects in a title. A clear title is one that’s free from any defects — such as liens, disputes, or other issues that could put ownership at risk.
The title must be clear to transfer ownership, meaning you may not be able to close on your new property if there are unresolved title defects. That’s because a clear title not only establishes who owns the property, but also ensures that no other party can legally claim ownership.
Title insurance protects all parties involved in a real estate transaction, including buyers, sellers, and lenders, by resolving title disputes and proactively saving time and money. Before issuing your title insurance policy, the title company will thoroughly investigate the property’s history via a title search.
What, exactly, are some of the problems that can pop up during a title search? In this article, the first in a series on “Title Troubles,” we’ll look at common title issues and discuss how we resolve them and get you to the closing table in a timely manner.
Liens and Judgments
One reason a thorough title search is necessary to safeguard your investment in a new home is that it can uncover various liens and judgments that may affect the property’s title and ownership. A lien is simply a legal right or claim against a property by a creditor or someone who has a legal interest in the property; it can be voluntary or involuntary. For example, banks and credit unions commonly place liens against properties so they can collect what is owed to them.
Voluntary Liens
A voluntary lien is a claim willingly placed on a property by the owner to secure the payment of a debt. In other words, it’s a lien used when the owner has given their consent. The most common voluntary liens include:
- Mortgage liens
As a condition of the mortgage when purchasing or refinancing your home, your lender will typically place a lien on your property as collateral until the loan is fully repaid.
- Home equity liens
Similar to a mortgage lien, this is placed when a homeowner borrows against the property’s equity.
- Secured loan liens
These are sometimes referred to as home improvement loans, or PACE (Property Assessed Clean Energy) loans. When obtaining a loan for purchases such as windows or solar panels, the lender will use the property as collateral, meaning a lien may be placed on the property until the debt is repaid.
Involuntary Liens
An involuntary lien is a legal claim placed against a property without the owner’s permission or agreement. Some of the most common types of involuntary liens affecting real property include:
- Judgment liens
The direct result of a lawsuit, a judgment lien is a type of involuntary lien that can be placed on your property after a creditor sues you and wins the case. One instance where a judgment lien may be placed against a property is in the case of an accident. If one person injures someone else or their property through negligence, a judgment lien may be used to cover the damages.
- Tax liens
If an individual or company fails to pay their taxes, a government entity can place a lien on the property for the amount of unpaid taxes. These liens usually take priority over all other mortgages and liens. Examples include: (1.) State tax liens, such as those filed by the Michigan Department of Treasury against a debtor’s real or personal property; (2.) Property tax liens initiated by the county treasurer under the General Property Tax Act, which can result in foreclosure if left unpaid; and (3.) Federal tax liens are placed by the IRS on a taxpayer’s property for unpaid federal taxes, including income and business taxes.
- Mechanic’s liens
Pertinent to the construction industry, mechanic’s liens are specific liens created through statutory rights. Laws in each state give construction businesses and laborers the right to claim such liens. They occur when a contractor, construction materials supplier, equipment lessor, or other licensed professional provides construction or repair services. If those parties are unpaid, the licensed individual or company can file a lien against the associated property.
- Unpaid HOA dues
When this lien remains unpaid, the HOA can pursue judicial foreclosure, a legal process that may result in sale of the property. Depending on state law, some HOA liens can have priority over previously recorded liens.
At Vanguard Title, we conduct an in-depth and exhaustive title search as part of your closing to uncover liens, judgments, and more. If liens are found, we work with the client to help clear them before closing, which may involve paying off the lien or negotiating with the lien holder to release it. We also communicate with all parties involved to help resolve the title issues and ensure a smooth transaction.
Count on Vanguard to Give You Peace of Mind
While you’re looking toward the future and envisioning yourself and your family settling into your new home, Vanguard works diligently to research and verify the property’s ownership history. We’ve successfully closed thousands of real estate transactions in Michigan and Florida, and our skilled staff has the expertise and experience to make certain your transaction is closed accurately and on time.
Keep watching our blog for more title-related information. In the meantime, be sure to contact us with any questions you may have. We’re here to help!