When purchasing distressed properties, clouds on title can be a major headache and a costly time waster. This can cause real property sales to be postponed and even cancelled. There are many different factors that can lead to a so-called “cloud” on title (or title defect that interferes with a seller’s ability to transfer “clear” title to a property). A comprehensive property search will identify any title defects that cloud title. These issues can move in like storm clouds and cause unwanted delays in closing.
Although it may be possible to close on a property subject to certain clouds on title, these issues could potentially cause problems later when the new owner tries to sell the property. This is particularly concerning for investors who plan on turning the property over quickly. These issues tend to be more common when purchasing distressed properties. It is best to handle these issues up front rather than close on the property with the intention of clearing those issues later.
Common issues that create a cloud on title are mortgages that were paid but not satisfied of record, delinquent taxes, judgments, and potential estate issues such as discovery of undisclosed heirs. In the first part of a three part series, we will shed some light on these types of clouds.
Part 1 – Unsatisfied Mortgages
It is not uncommon for a searcher to find multiple mortgages encumbering a property. In many cases, the mortgage was paid but a satisfaction was not recorded. When this happens, trying to track down the proof of payment and unrecorded release documents can prove to be very difficult. Sellers often do not have the necessary documents at their disposal. The originating lender of the mortgage, or subsequent assignee, may not be in business any longer. These release documents must be obtained and recorded in order to remove the cloud on title. This process can take time and money. In the case of distressed properties, sellers are unlikely able to accomplish this on their own. Buyers should anticipate hiring a title company with the experience and expertise required to handle such issues.
Our team at Terra Abstract has the requisite skills needed to assist investors, banks, and homebuyers in clearing the clouds on title that prevent them from moving forward with purchasing a property.