You've found your dream home. It's everything you've ever wanted. Maybe it's too good to be true -- there's trouble with the title. What do you do if the title insurance is not approved for a house? Simple answer: Run, don't walk, away from it. You probably won't have much choice. Your mortgage company won't give you a loan without title insurance. In some cases, there may be a workable solution.
The title is the proof that a piece of property is legally owned. It's an extremely important document. Without a clear title, you are taking a tremendous gamble in purchasing a house or other property.
A title search company investigates the history of a property's title to make sure it is free and clear of encumbrances. It ensures that the seller actually owns the property and has the right to sell it, and looks into any property restrictions such as deed restrictions or easements. It makes sure that the deed to the property is properly recorded in the county clerk's office. Encumbrances can include liens, which prevent title transfers until a monetary amount is paid. Typical liens against the property might consist of a judgment in a lawsuit against previous owners; property tax liens and mechanic's liens for non-payment of construction or repair work. However, even the most diligent title search can miss something, or there is pertinent information that was never recorded. That's why title insurance is crucial.
Title insurance is just that, insurance to protect you from claims against the ownership of the property. Truly unforeseen circumstances can arise, even after a title search. Even if you are in a position to buy a house outright with no mortgage so you don't have to worry about lender approval, purchasing it without title insurance is foolhardy. Besides the fact that someone could make a claim against the property, trying to sell the house in the future would be a very difficult task.
Depending on what the title problems are, you might be able to come up with a solution. If the boundaries aren't correct, perhaps a neighbor will agree to sell a small portion of property to the seller to correct that title deficiency. If the right permits weren't received to put up fences or outbuildings, the seller might agree to get the permits and make any adjustments, such as tearing down the fence and building. This is something you should discuss with the attorney handling your real estate purchase, sending evidence of the corrections to the title search company. However, if it's a question of convoluted ownership, the title problem might be insoluble.
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