The Real Estate Investors Guide To Dealing With Title Issues

[Omar Johnson]

A basic real estate contract stipulates that on or before a specified date the buyer agrees to bring cash for the purchase and the seller agrees to deliver clear title to prove that they have the right to sell the property. Although according to the contract it is the seller's responsibility to ensure salable title, you as the investor are responsible for seeing that the deal gets done, so the process of ensuring clear title is something that you want to take charge of.

All deals must be screened for title issues prior to closing and either necessary and appropriate actions must be taken to clean the title or the deal must be scrapped because of unsolvable issues.

A title issue, also called a cloud, is any recorded document or state of affairs that prevents the transaction from getting through the title policy underwriting process because of a potential claim to the property in opposition to the seller's. Common clouds on title are liens, which can be attached to a specific property, such as a mechanic's lien, and judgments, which can be attached to a specific individual, such as a judgment for child support.

If an individual who owns property is the defendant in a lawsuit and a judgment is awarded against that individual, then the judgment will automatically be attached to any property belonging to that person. So a property may have involuntary liens or judgments attached to it that the seller isn't even aware of. Also, if a significant amount is owed in past due taxes then this could be attached to the property as a lien.

Another type of title issue is one involving probate. If the survivors and heirs of a deceased person do not take the will through the probate process in a timely fashion, it will eventually become null and void for purposes of transferring the property and the heirs will have to pursue other means if they want to take title.

Fixes for title issues will be individual and based on the situation, but there are a few common techniques to have in your mental toolbox. First of all, if the issue is a lien or judgment that is attached to the property, it may be possible to contact the lien holder and ask for a release of lien. Or, it may be possible to negotiate with the lien holder to accept a discounted amount to satisfy the lien.

In cases where there is an unprobated will, the usual remedy is an affidavit of heirship. This is a document that can be prepared by your title company and that requires detailed information and signatures from the survivors of the deceased, and which can be used to transfer the title of an unprobated property to the rightful heir. And finally, in some situations nothing simple will work and you may have to bring a suit to quiet title, which can fix some problems but involves a court action. You should have an attorney advise you if or when this becomes necessary.

Realize that title issues unsolvable by most buyers can be a reason for a seller to become motivated. Being able to fix problems that others don't know how to deal with can be a major source of profit in your real estate business. If you can recognize and capitalize on the hidden opportunities in title issues then you will have one more competitive advantage.