When title to your house is not clear, there is someone with a claim against the property. That claim can interfere with your ability to purchase title insurance, which makes the real estate less attractive to a buyer. There are remedies to clearing title. Yet, sometimes a party with a claim may refuse to cooperate, leaving a cloud on the title.
The deed is the document used to convey title or interest in real estate from the seller to the buyer. Title refers to the ownership in the property, and it also means evidence of ownership by a deed. When you convey clear title to a buyer, this means there are no other claims on the property. It is possible to convey your interest in property to a buyer, if there are claims on the property, such as with a quit-claim deed. The quit-claim deed just conveys your interest, and makes no promise about the property being free of claims. Yet, if you convey the property with a general warranty deed and promise the title is clear, you will typically need a title insurance policy to back up your promise.
Title Insurance Policy
A title insurance policy protects the buyer’s financial investment in real estate. If after the close of escrow someone proves a prior claim on the property, the policy can pay for damages to the buyer. Before issuing a policy, there is a title search done on the property, to identify any possible claims. If claims exist, and the title is not clear, you will not be able to purchase a title insurance policy. This can prevent the sale of your house, should the buyer’s offer be contingent on you providing a policy.
There are a number reasons you may not have clear title. You may owe back taxes or have an old lien from a previous owner attached to the property. When you purchased the property, you may have signed the deed incorrectly. Sometimes lien holders fail to clear liens after you satisfy a debt.
Typically, when a buyer purchases a house, the buyer’s funds pay off the outstanding debts on the property, before title conveys to the buyer and the seller receives his funds. Yet, if the seller doesn’t believe a lien is justified, and doesn’t intend to pay it at the close of escrow, the seller cannot convey clear title to the buyer. To clear title, the seller must work to get the lien released. Remedying errors sometimes involve issuing a quit-claim deed, to release the interest in the property to seller. Typically, the title company will assist the seller in clearing title, which is not always possible.
- "Modern Real Estate Practice"; Fillmore Galaty, et al.; 2006
- “Sell It Yourself”; Ralph Roberts; 1999
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