Clouds on title, liens, encroachments and encumbrances. Terms like these pop up when you buy or sell a house. It's smart to understand the down and dirty of what clearing title means -- as well as the risks of calling a house that has title defects home. Generally, the law does not require a seller to warrant or clear title before a house sale closes. However, there are other reasons to call for a clean slate before you sign on the dotted line.
Homes buyers generally receive marketable title, sometimes called clear title, when they seal their deals. Clear title means the seller can't leave you holding the bag for title defects at closing. For example, a seller's mortgage must be paid in full and discharged from the county land records at closing. Marketable title doesn't mean there are no title defects -- or clouds on title. A utility easement that allows the electric company tromp through your yard to repair a downed wire is a cloud on title, but it won't usually render your title unmarketable.
Your bank or mortgage company won't open its wallet for a loan unless the house you're buying has clear title. Lenders also require title insurance policies to protect them from title disputes after closing. Sellers generally pay for title insurance policies for buyers. Buyers pick up the tabs for policies covering their lenders. Prices for title policies vary in different states and between title companies. Dial up a local title company for a specific quote.
Cash and Seller-Financing
Cash and seller-financed deals can have differently negotiated title requirements because mortgages aren't in the mix. Sellers can transfer houses using quit-claim deeds, which don't guarantee clear title. Buyers may choose to take on title risks. For example, a neighbor's garage may be over a lot line, creating an encroachment on the property you are buying. You may decide to roll the dice and see how things go with your new neighbor after closing.
Even though some house sales can close without clearing title, clouds such as mortgage, construction and judgment liens can lead to foreclosures and lost money. Other title issues, such as a property line dispute, can create closing headaches if you decide to resell your property. A buyer should drop into his local lawyer's office and get some expert advice before agreeing to buy a house without first clearing its title.
- Clear Title Services, Inc.: Title Insurance - What Is It?
- Bankrate.com: Understanding Quitclaim, Warranty Deeds on Property
- Realtor.com: Title Insurance: Who Needs It?
- Title Source, LLC: Real Estate Title Insurance F.A.Q.'s
- North Title: CLAGOP Services
- Law Offices of William G. Morris: It's the Law: There Are Many Different Types of Deeds
- Connecticut Association of Realtors: What Is This Thing Called Marketable Title?
- Jupiterimages/liquidlibrary/Getty Images
- How to Track a Wire Through the Federal Reserve Bank
- What if You Disagree With a Bank Appraisal?
- What Is a Pre-Qualified Letter?
- How to Transfer a Mortgage to a New Bank
- How to Change Banks When Relocating
- Can a Bank Turn Down a Mortgage for No Reason?
- How to Refinance Paid for Property & Cash Out Equity
- What Is the Difference Between Mezzanine Debt & Subordinated Debt?
- Ideas for a House Warming Gift That Won't Break the Bank
- Advantages & Disadvantages of Electronic Paycheck Bank Deposits