One of the first actions a real estate broker takes for a seller is to request a title report to review the legal property description and look for any areas of concern, including the validity and accuracy of ownership. Also known as a preliminary title report, seller and broker (and eventually buyer with his/her broker) should pay close attention to potential red flags.
Each county in Washington state has a department that keeps homeownership records. King County property details are available at the records office in downtown Seattle and searchable online. Title companies also maintain thorough copies of those records, including the chain of title that dates back to patent (the earliest origins of granting land), in order to research property ownership and encumbrances (also known as impediments). Issues – in legal parlance, “clouds” – can arise with the title and homeownership, mostly from the owner’s own doing.
Here are a few examples* of a property title in need of attention by the seller – oftentimes with legal assistance or court action – before the home can be sold:
Access Questions – Access to the property could be in dispute, requiring agreement in writing from affected owners or land acquisition by the seller to clear doubt.
Code Violations – Housing violations – such as a home extension built without permits or county recording – typically need to be corrected and appropriate releases obtained from the local building department.
Easements or Encroachments – A neighbor may claim land-use rights (a path leading to shared water access, for example) or the seller’s fence sits on another owner’s property, in both cases causing the titleholder to clear any confusion (including, possibly, amending the deed and/or moving the fence).
Federal, state and local taxes owed – This is known as a lien against title and payoff of the tax(es) due is required before title can be cleared.
Judgments – Similar to a tax lien, the seller must pay court-ordered judgments – such as unpaid child support – to clear title.
Mechanic’s Liens – These are essentially unpaid bills from contractors that performed work for the homeowner (not necessarily on the property) and must be cleared before selling the home. A monetary holdback can sometimes be arranged to move the sale forward.
Pending Lawsuits – Typically court actions should be resolved before a transaction is completed. A notice of pending legal proceedings that may affect the property can take months or years to resolve, so a monetary holdback can sometimes be arranged.
Unvested – Vesting means that a person has a secured right to real property. When a homeowner dies, a surviving unmarried partner could be unvested if not listed on the title and instructions for inheritance are unclear in the deceased’s estate plan.
There are occasions, too, when a late development from a third party can cause delays. A long-lost cousin may claim in court that he was supposed to inherit the home from his deceased uncle. Or a second person with the same name appears out of the woodwork to make a claim on the home. We’ve seen some crazy stuff!
(The title and deed are typically interchangeable terms but are separate concepts. The title is the bundle of rights to legal ownership of the property. The deed is the physical document that passes the ownership rights from seller to buyer and is recorded at the county records office.)
These are just a handful of instances in which potential issues may slow or even halt plans to sell a home. The onus is on the seller – often through an attorney – to sort out the impediments and ensure title on the home is free and clear of judgments, claims and liens.
A smart way to protect yourself against claims that are outside of your control is to have title insurance. It protects both the owner and mortgage lender against property loss or damage experienced from certain issues, with the title company typically handling the legal defense of any claims covered by the policy. To be sure, the seller is on the hook for personal monetary matters but title insurance can protect an owner from false claims years later or a lack of information at the time of a sale.
The seller generally incurs the expense of the insurance policy and coverage continues for as long as the new buyer/owner has an interest in the property. Title companies conveniently partner with escrow businesses to provide start-to-finish service on the home purchase and sale. Typically, a seller will work with his/her broker to name an escrow and title company as their representatives in the sale of the home. This way, the sellers know in advance who they will be working with through the process.
* – Some of the enclosed information is sourced from and courtesy of Rainier Title LLC.