Title and/or Deed Issues Attempting To Sell Property Recently Purchased

[Conrad Meier]

We bought a property the end of last year that needed more work than we realized, so we started gathering estimates for rehabbing the property. Anyways, we had someone make an offer on our property that would get us out of the deal and breaking even. We started the process to sell it and this is what the buyer’s attorney has brought to our attention. I summarized and consolidated multiple emails into the below segment.

“We have reviewed the title and found that there was a tax deed issued in 2023. The property has since been sold twice and no quiet title action or a quit claim deed from the defaulting tax payer have been recorded. In order to issue a clean title, General Warranty Deed, and an owner's title policy to our new buyer we will need one of those two things. That is the only way to clear the title. The affidavit recorded with the deed does not dismiss the title issue or clear it. Our title insurance agency will not be able to insure this without either a deed from the defaulting tax payer or a quiet title action by the seller.”

When we purchased the house we were given title insurance and a general warranty deed and when I provided my paper work to the buyers real estate attorney they sent the above messages to us and our previous closing attorney. What is the actual problem? Do I own this house? What do I actually need to do in order to fix this? Do I contact a title search company or a real estate attorney to begin solving this “issue”?

[Kevin Sobilo]

@Conrad Meier, this is not uncommon with a tax sale property. 

The process is VERY messy and so the prior owner or other interested parties could have cause to reverse the sale. For example your state's law might require a prior owner who resided in the property to be notified in person but they may not have been able to locate and serve them notice or an interested party may have been notified at the wrong address. These issues create clouds on the title.

Many title companies won't issue title insurance for a period of time after a tax sale before of the liklihood of something like this popping up, sometimes even after a quiet title action is done.

So, the title insurance company the buyer is using wants either the prior owner to sign a quit claim deed so they know this won't be an issue or for you to do a quiet title action so that owner has only that one last chance to come forward settling the issue.  That would be very typical work an investor would do when they buy a tax sale property.

One other suggestion you might take is to suggest they use the title company you got insured through because apparently they are more relaxed with their requirements.

I would also discuss with your lawyer about providing a General Warranty deed. In my state a Special Warranty deed is most common. A General Warranty deed means that buyer can hold YOU legally responsible for any title issues later on even if the issue happened BEFORE you owned the property. With a Special Warranty deed they can only hold you accountable for title issues that happened during your ownership of the property. I'm not sure what is the common practice in your state, so I would discuss with a lawyer.