What Is a Clear Title? 9 Facts You Need To Know

To have a clear title, there must be no doubts about who owns the property. Purchasing a car or a house, for example, necessitates the creation of a valid title. In the real estate sector, a title search is often undertaken prior to closing to confirm that the title is free and clear.

What Is a Clear Title?

A title is considered to be “clean” if it has no liens or levies on it from creditors or anybody else that may call the owner’s claim to lawful possession into question.

The owner of a clear title house, for example, is the sole legal owner of the property, and no one else may lay claims to it. The term “free and clear title” refers to a title that is free of liens and other claims.

What Is a Clear Title?

Real estate transactions cannot take place without a clear title that demonstrates who the legal owner of the property is. Title companies perform comprehensive searches for encumbrances to establish whether or not a title is free and clear.

Unresolved construction code violations or incorrect surveys are two examples of problems that might render a title unmarketable.

How a Clear Title Works

To demonstrate that a seller has the legal right to sell their property, they must provide documentation that the title is free and clear of any liens or other financial claims. For a property sale to go well, proof of legal ownership in the form of a clear title must be presented.

A “cloud on the title” happens when liens are present and a claim or unreleased lien threatens to invalidate or harm the owner’s title to the property.

Mortgage payments and bills from contractors who worked on the property’s upkeep are examples of possible outstanding obligations. If there are liens on the title of the property, the new owner is responsible for paying them off.

As soon as the title is clear, a home can be registered in the buyer’s name. The deed is the legal record of property ownership. Prospective homebuyers should confirm the property’s title is free and clear before putting their name on the deed. A property may be sold notwithstanding the presence of debts.

In most places, property liens are not required to be cleared in order to finalize a deal. The buyer, on the other hand, would be unable to get financing in the form of a mortgage or home equity loan since the investigating bank would undoubtedly discover the presence of earlier liens.

Discrimination in mortgage lending is illegal. You have choices if you believe you have been treated unfairly because of your race, religion, gender, marital status, receipt of government assistance, national origin, disability, or age.

What Is a Clear Title?

One such step is to report a concern to the Consumer Financial Protection Bureau or the Department of Housing and Urban Development (HUD).

Uncovering Title Issues

During the search, the abstractor will identify any issues with the title. Title defects, sometimes known as clouds on title, are issues with a property’s legal documents that may prevent the buyer from obtaining complete, uncontested possession. A title search may reveal problems with the title, including as liens and easements.

Liens

A lien on the property is the most common type of title difficulty. A security interest in an asset can be granted to guarantee that a debt or other obligation is satisfied. Several examples are shown below:

Mortgage lien: A mortgage, one of the most common liens, gives the lender a partial ownership stake in the property until the loan is paid off. The seller’s mortgage lender is among those who will demand to be reimbursed for providing financing for the seller’s initial acquisition of the property.

Tax lien: When property taxes are not paid, the government can confiscate a section of the land until the debt is satisfied.

Judgment lien: If a person is held accountable for financial damages in a lawsuit and has failed to pay those damages, a lien may be placed on their property.

Mechanic lien: When a person engages a vendor to make changes to their property but fails to pay the vendor for their services, the vendor may file a lien on the property to guarantee that they keep certain ownership rights to the property until they are paid in full.

What Is a Clear Title?

Easement

An easement is a legal right to traverse or utilize another person’s land for a certain purpose. This is true in situations such as:

  • If you live on a lake, your neighbor will have to cross your land to get to the water.
  • Because the house directly behind yours has no direct access to the public road, its inhabitants must use your private driveway to reach the street.

When the settlement business has an accurate image of the property’s title, any issues will be noted on the title commitment.

The 3 Sections Of a Title Commitment

After the title search is completed, the settlement business will put the findings in a title commitment.

It is a one-of-a-kind contract that details the insurance coverage when the transaction is completed. A formal pledge or commitment to provide the ultimate title insurance coverage after the closing.

Because it is an official underwriter document, the title commitment must adhere to a specific structure. The following are instances of title delivery obligations.

1. Schedule A

These include details about the insured property and parties such as:

  1. The property’s location
  2. A “parcel ID” is a government-issued identification for the property.
  3. The legal identifiers of a property that determine its exact location and size.
  4. Specifics about the expected insurance coverage
  5. Who should such measures protect?

2. Requirements

Based on difficulties uncovered during the title search, requirements may be thought of as a check-off list of elements that must be completed before title insurance (and the final policy) can be provided.

For example, in the event of a mortgage lien, the lienholder must agree to waive their interest in the property (by paying off their mortgage) before the title may be transferred.

3. Exceptions

Additional title concerns uncovered during the title search that will not be remedied (and so will not be covered by the final title insurance policy) are noted below. An easement, for example, is not considered a limitation.

Because there is no way to settle the issue, both the buyer and the lender are fine with it not being protected by title insurance.

What Is a Clear Title?

Once the title commitment has been created, the settlement company’s procedure is to provide a copy to the lender and anybody else who needs to assess it.

After obtaining a title commitment, the settlement company’s role is to clear the title by correcting any difficulties noted in the commitment.

The Curative Period

After obtaining the title commitment, the settlement business will seek to resolve the title issues listed in the requirements section. Because the title or escrow business is “curing” the title of any problems during this time, the period is usually known as the curative phase.

In this section, we will utilize the most common title issue—a mortgage lien—to demonstrate the various ways for addressing title issues.

Assume the title search turns up a mortgage lien from the seller’s previous mortgage. The mediation service must provide:

  • Contact the bank that owns the lien. In a mortgage payment transaction, the repayment lender is not always the mortgage lender.
  • Inform this payment lender that the mortgage has been paid off.
  • Obtain a commitment from the repayment lender that they will renounce their interest in the property after the mortgage debt is fully paid off.

If a title difficulty cannot be resolved, it may be included to the “exceptions” part of the final policy, indicating that the insurance will not cover it. So, for example:

Assume a title check finds a 1912 mortgage obligation. The settlement business attempts to contact the payment lender but learns that the bank holding the mortgage debt has closed its doors. Because the lienholder corporation no longer exists, this title problem cannot be remedied.

All unresolved criteria will have been satisfied or moved to policy exceptions by the end of the corrective phase.

The title agent will provide the final insurance after the cure period has expired. In the next edition of this series, we’ll go over this critical phase in the closing process in greater detail.

4 Reasons Why a Title Isn’t Clear

There are several reasons why a title search may show the title as unclear. Occupation of a house does not confer ownership or rights in that residence on that individual. When attempting to sell a home, title issues emerge when the buyer is unsure who truly owns the property.

Heirs

Older properties provide extra complications because the former owner’s family may still have a legal claim in the land. It’s possible that a prior owner transferred portion of the land to a slacker heir who never claimed the property as their own.

It is possible that the heir’s descendants have inherited the heir’s rights as a partial owner, even if they are unaware of the circumstance.

An heir who fails to transfer ownership by submitting the requisite deed with the county clerk’s office is another major source of title difficulties.

What Is a Clear Title?

Because the deed would still name the relative who bequeathed the property to the heir in a will, if the heir sought to sell the property, they would face title issues.

Fraud

Another reason why having a clean title is important is to avoid fraud. If a deed that does not exist was registered, there might be a forgery in the public record. By falsifying a deed, a con artist may attempt to sell stolen property.

Separation or Divorce

Title concerns may occur when a couple divorces but continues to live together. For example, if the couple bought the house jointly and one of them moved out after the separation, they would still be the legal owners even if they did not divorce.

Because the deed would have two names on it, title complications would arise if the present homeowner sought to sell the property.

A Trust

It’s conceivable that the property was transferred to a trust or another organization with a legal claim to it. This is why, before making any financial commitment to acquire real estate, title searches are performed: to uncover any such issues.

How to Check For A Clear Title On A Property

If you are a prospective buyer or seller, you should check the title history of the property by visiting the local property records office or completing an internet search.

Other records, such as construction permits and zoning regulations, which may restrict property rights, may also need to be studied, but this will inform you what is in the official records.

When you apply for a mortgage, the lender will engage a closing agent to investigate the property’s title. This might be an attorney, title company, or escrow agency. The borrower is frequently asked to pay a fee for this search as part of the loan closing expenses.

Issues With The Title And How To Resolve Them

Given that property ownership is registered in public record offices, it appears that few, if any, title defects exist. What potential issues may there be with the property’s title?

First American Title Insurance Company, one of the largest title insurance carriers in the United States, has a list of over 70 possible defects, which includes:

  • Keeping a forgery hidden
  • Divorce processes are kept private.
  • The occurrence of concealed tax liens
  • Will Be Controversial
  • The mechanic’s liens
  • Zoning violations

Legal expenses can quickly build up if an issue is discovered during the title search, or if one is not discovered at first but later develops. This is where title insurance comes in.

What Is a Clear Title?

Your lender may need lender’s title insurance, which protects the lender and provides coverage up to the value of the mortgage in the case of a fault. Homeowner’s insurance, which covers you up to the value of your home, may also be required.

If another party successfully challenges your claim of ownership, your owner’s title insurance will cover the remaining balance on your loan and your equity up to the purchase price. With the addition of an inflation rider, the policy’s coverage will grow in tandem with the property’s market value (up to a certain point).

One thing to remember is that the cost of title insurance varies greatly. In certain states, the cost of title insurance is controlled at the state level, however in others, it is beneficial to compare quotations from many suppliers.

When weighing your options, always ask about the “reissue rate,” which is a lower rate that may be provided if the property was recently sold or refinanced.

Despite the fact that title insurance covers a lot of hazards, there are still those that aren’t covered. If you have any questions or concerns regarding a property you want to buy, you should check with a real estate attorney before making a final choice.

Frequently Asked Questions About Clear Title

What Does Clear Title Mean?

A “clean title” to a piece of property means that there are no liens or other claims against it.

Can I Buy a Home Without a Clear Title?

No. A house that does not have a clear title is not for sale. Any faults that are discovered can be fixed if you still wish to buy the house.

What Is a Clear Title?

Can You Buy a Home Without Clear Title?

Yes, it is possible to acquire a property without a valid title, but it will be difficult and risky. You will be unable to obtain a loan or homeowners insurance, and you will be forced to pay excessive costs to have the liens erased or risk losing the house entirely.

Conclusion

In other words, if the title is “clear,” no one else has a genuine claim to the property. This suggests that there are no doubts about who owns the property or if it is encumbered by liens.

Title businesses can use their resources to investigate the legality of a property’s title and ensure it is free of legal issues. This is normal procedure in the real estate sector because residences aren’t intended to change hands without a clear title.

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Pat Moriarty
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