A title is a bundle of legal rights related to the ownership of a property and how it may be used.
When you buy a home, your mortgage lender will order a title search that reviews all public records related to the property. If all goes well, the search will find the title is free of defects, clearing the way for the seller to transfer the property to you with no outstanding debts or outside claims to ownership.
But not every property has a clear title. Here are 12 title problems that could delay or derail a home sale.
- Common title defects include incomplete or inaccurate public records, liens on the property, and illegal, forged, or missing documents.
- Fixing title issues can be relatively simple, or so complicated and difficult that it derails the sale.
- Buyers can protect themselves against title search errors by purchasing owners title insurance.
1. Public Record Errors
Errors and mistakes in public records can cause problems during a home sale, though some are easier to resolve than others.
For example, if someone records a transaction and misspells the name of the street the property is on, or forgets to initial a document, that should be relatively simple to correct.
Errors such as a deed with incorrect square footage for the home may be more difficult to correct. Your lender may have approved your mortgage application based on the public record stating the home has 1,500 square feet of space. But if it’s discovered that the home only has 1,200 square feet of space, your lender may reconsider the home’s value and how much it’s willing to lend to you.
2. Unknown Ownership Claims
Who owns a home is not always an easy question to answer.
For example, imagine that John Smith and Jane Doe marry and buy a home together. When John dies, Jane plans to sell the home, thinking she has full ownership. However, in his will, John left his interest in the property to his brother. Who has the right to sell the home?
If such conflicts are found during the home sale, and the seller is unable to resolve the issue before closing, the transaction likely will be canceled.
Sometimes, such claims come to light years after the home has been sold, throwing doubt on the seller’s legal right to have sold you the home. If you paid for owners title insurance when you bought the home, this policy will cover the cost of resolving the issue. If you passed on this policy, you’ll have to deal with such claims — and the cost of resolving them — on your own.
3. Judgment Liens
When a homeowner defaults on a debt, the creditor may sue them in court and be granted what’s called a judgment lien on their property. This puts the creditor in line ahead of the owner to receive proceeds and recoup its losses when the home is sold. Lienholders may be able to foreclose on a property to force such a sale.
If a home has a lien on it, the owner needs to remove it before selling the home. This usually involves the seller paying off the debt, or legally promising to repay the debt with proceeds from the sale.
If the home is sold with a lien still attached to it, the buyer will assume responsibility for the lien along with ownership of the home.
4. Unreleased Mortgages
When lenders approve a mortgage for a home, they place a lien on the property to secure it as collateral for the loan. Once the seller pays off the mortgage, the lender typically removes the lien. This is called releasing the deed.
Sometimes, a previous lender or borrower can fail to record the lien release, and the title search will show the lien still attached to the property. Releasing the deed typically requires taking legal action to prove that the loan was satisfied, which may take some time to resolve and could delay a sale.
5. Outstanding Tax Bills
If a homeowner fails to pay property taxes, the taxing authority can place a lien on the property that must be satisfied before the home can be sold. Liens also may be placed on a property if the owner has unpaid federal or state income taxes.
6. Mechanics Liens
If a homeowner hires someone to do work on their home — repairing the roof, installing an air conditioner, working on the plumbing, etc. — the homeowner has to pay the contractor for that work. If the owner fails to pay, the contractor can file what’s called a mechanics lien on the property that must be paid or resolved to clear the title for a home sale.
7. Child Support Liens
If a homeowner defaults on their court-ordered child support payments, the parent or guardian with custody of the child may place a lien on their property. Such liens typically remain in force until the child support payments are brought up to date, or the custodial parent or guardian agrees to remove it.
Filing bankruptcy allows people who are unable to repay their creditors to restructure or eliminate some of their debts. Depending on the type of bankruptcy used, and the debtor’s financial situation, they may need to sell assets to pay their creditors and remove the liens placed on their home.
9. Illegal Deeds
The term “deed” often is used interchangeably with “title,” though they are not the same. A deed is a document that legally changes ownership of a home from one party to another, while a title describes the overall legal concept of ownership.
A legal deed must be properly delivered to the receiving party. Delivery in this sense means the seller shows a clear and immediate intent to transfer ownership permanently to the buyer. In most states, recording the deed and transferring physical ownership satisfy this requirement.
But questions still can arise if, for example, the seller tries to back out of the sale before all of its conditions have been met. In such cases, the deed transfer may be declared illegal, and the buyer would have to return the deed.
Forged deeds present an obvious problem. For example, some people will forge their name on a deed to a property they don’t own to try to sell it to an unsuspecting buyer. They also may falsify details about the property on the deed to make the buyer think they are buying a bigger house or more land than they actually are.
11. Unclear Property Boundaries
One of the most common title issues is a boundary dispute. It sometimes can be difficult to know precisely where one plot of land ends and the neighboring one starts, but such details can play a big role in the value of a home. Imagine buying a home that comes with a driveway and detached garage, only to find out later that the driveway and garage are actually on your neighbor’s property — and you’re not allowed to use them.
12. Restrictive Covenants
A restrictive covenant is an agreement, usually made with a homeowners association, that places limits on how a property can be used. Because these covenants affect how you can use the home, they affect your title to the property.
Covenants can vary significantly. Some will be innocuous, such as saying you can’t raise livestock in the city, or run a manufacturing business out of your home. Others could limit the color you can paint your home or how you can decorate your yard.
Some properties may have restrictive covenants on record that are unenforceable. It was once common for homeowners to add restrictive covenants banning the sale of the property to people of certain races or nationalities. Such covenants are now illegal.
Fixing Title Issues
The process for fixing title issues will depend on what the issue is, and when the problem first occurred.
A simple clerical error in public records likely will be relatively easy to fix. You may be able to work with the closing attorney to make small corrections.
Deed errors usually are corrected with one of three documents:
- Warranty deed. This includes a guarantee from the seller to accept liability for any title problems.
- Quitclaim deed. This is similar to a warranty deed, except without the guarantee. That means the buyer assumes liability for any title problems.
- Correction deed. This makes changes to the deed in the public record.
Liens are more complicated to resolve. The seller will need to negotiate with the lienholder to find a solution. That may involve promising to pay what is owed out of the proceeds of the sale, or making other agreements to satisfy the debt.
Fraud, boundary disputes, and other legal issues are the most difficult to handle, and their discovery usually results in a canceled sale. You’ll want to work with your title search company to understand the full scope of these issues and whether they can be resolved. As a buyer, it might be in your best interest to back out of the deal entirely.
Title Tips for Buyers and Sellers
If you’re a homeowner looking to sell, it’s in your best interest to deal with liens before putting the property on the market. The last thing you want is to accept an offer, only for the sale to fall apart because of title issues.
“Resolving title issues requires a proactive approach,” says Jacob Michal, CEO of Louisville Cash Real Estate, a Louisville, Kentucky-based real estate investment business. “If a lien is discovered, the seller must work with the creditor to negotiate a payoff or release the lien before closing the sale.”
For buyers, the most important thing to do is to buy owners title insurance. This policy protects you against losses from any title problems encountered. For example, if a lien on the home is discovered after closing, your title insurer would assume the cost and handle the claim for you.
FAQ: Title Issues That Can Derail a Home Sale
Here are answers to common questions about title issues that can derail a home sale.
Buyers can protect themselves from title issues by buying owners title insurance. This policy will protect you by covering the cost of resolving any unknown title problems that come to light.
Title defects include liens, unpaid debts, unclear property boundaries, and recording problems at the registry of deeds.
A warranty deed guarantees that the home is free and clear of debts or other liens. The seller promises to compensate the buyer if that is not the case. It’s different from other types of deeds, like quitclaim deeds, which don’t offer that guarantee.
The Bottom Line on Title Issues That Can Block a Home Sale
Making sure that a home has a clear title is important when you’re buying it. Liens, errors, missing documents, and forgeries all can stall or derail the sale of a home. Knowing what issues affect a home’s title — and how to resolve them — can help ensure a smooth homebuying process.