A property might look great in the walk-through but have invisible issues that make it a risky, difficult, or impossible purchase. These variables often show up on chain of title records and make it a defective title. The sooner you uncover a defective property title, the better, since knowing the issues with the property will help you determine whether to invest in it. Here's some information on what title defects are, how to find them, how to remedy them, and when to walk away.
What constitutes a title defect?
Title defects typically fall into three categories: unpaid debts, public record errors, and ownership/access disputes. Within those three main categories, there's a wide variety of issues that may "cloud" a title, or in other words, create a defect.
- Tax lien: The government imposes this on property owners with back taxes.
- Mechanic's lien: This can be filed by any contractor who was not paid for work done on the property (labor or supplies).
- Judgment liens: These are nonconsensual claims on a piece of property, court-imposed after a creditor has won a lawsuit.
Real property liens are filed with a county records office. The most straightforward way to have them removed is for the property owner to pay their debts to the creditor. Tax liens do expire (although they can also be renewed), so some people may choose to wait out the years and then ask a judge to remove an expired lien.
If there are mechanic's liens, the defective title holder may want to go to the contractors and attempt to negotiate with them directly to get them to remove the lien. Sometimes, there are genuine miscommunications about what's owed.
This leads to our next category: title defects.
Public record errors
There are countless moments in a property's history when someone might make a mistake, either in paperwork or accounting or filing. From the county clerk to contractors' bookkeepers to heirs and guardians, many people connected to a property might make a mistake that creates a defective title. Such errors include:
- Misfiled documents
- Special interest-holder names left off the deed
- Insufficient legal descriptions of property
- Improper cross-referencing of the defective deed and corrective deed
Clearing a title of such errors is a tedious process but not generally as expensive as removing a lien.
Finally, there are defects caused by disputes over who actually owns the property (in whole or in part). These can have deep roots, which can lie dormant even through the closing and only rear up years after a new owner has occupied the property. These include:
- Boundary disputes
- Unknown easements that give private entities or government agencies access to a property
- Missing heirs that reappear
- Other owners -- for example, a separated husband and wife who own concurrent estate, but only one party is trying to sell.
Beyond this, one gets into the sticky legal territory known as illegal deeds. While there's certainly a possibility an owner could be selling a property thinking their ex has no claim to it, they could also be intentionally acting as the sole owner when this isn't the case.
Another set of circumstances that leads to illegal deeds might be related to honest mistakes in the transfer from grantor to heir. For example, if someone has granted an heir life estate but then decides to sell the property without the heir's approval, it may be illegal. This can happen with elderly people not of entirely sound mind when making decisions about their property.
Finally, of course, there are altogether criminal incidents such as deed fraud and wrongful title transfers -- a worst-case-scenario that's unfortunately on the rise.