How to Avoid Title Snafus

Generally speaking, title companies do a very good job of searching real estate titles and insuring the buyer against possible title claims. Certainly, title companies play an important role in Pennsylvania, as they conduct the settlement. Title insurance is required any time you are getting a mortgage. Title insurance is purchased in last couple of weeks in process of selling a home.
You can think of the work of a title company like our view of a duck swimming on a pond. It looks smooth on the surface, but there is a lot going on “underneath” to make sure everything goes smoothly.
A title search ensures the seller is the rightful owner by looking at the entire chain of ownership. I have had buyers who were prevented from buying because back money was owed – they found out at the settlement table, and that is very late!
A title claim can be bewildering, especially for the heirs who are likely in unfamiliar territory. One case I was involved in recently had the children of a deceased person suing to say the person signing for estate sale did not have the authority to sell. The title company defended the buyer in this.
Elder Law Attorney Janet Colliton, Esq. explains that liens on a property could include:
• Tax liens, including inheritance tax liens
• Government (IRS or state) lien
• Credit card lien
• Contractor lien
• Criminal liens and judgments
“The seller may not know about the lien. This seems incredible but consider if the seller purchased the property from an estate. The seller may not know whether the inheritance taxes were paid by the estate. If the inheritance taxes are not paid, the taxing entity can put a lien on the real estate,” said Janet Colliton, Esq.
Here’s another example: A property had an IRS lien, and the judgment went back a long time. The seller had bought from an estate, and the estate didn’t have any information regarding tax payments. It turned out the judgment had expired, and it was erased, but not from the title report. An attorney had to work with them to make sure it was erased from the title report.
There are cases where the seller is behind in paying the mortgage on the property, and the lienholder bank decides to initiate foreclosure while a property is under contract to be sold. The mortgage has not been paid off. This can be an issue with a reverse mortgage, the bank can be extremely aggressive. That is difficult to overcome, cannot get an answer from the bank on how much money is owed, as there are fees, interest, etc.
Not every property sale is a disaster waiting to happen. But there are stumbling blocks that can arise. Here are some tips to help you avoid these title snafus:
1. First and foremost, it’s important to have someone “in your corner” – a highly experienced real estate broker and/or an attorney (someone who has been to a lot of settlements and understands the law)
2. It’s preferable that your broker or attorney have a good, working relationship with the title company
3. If the seller has paid off the mortgage, he or she should produce a “Letter of Satisfaction” from the bank or mortgage company (if you pay off a mortgage, make sure you keep this “Letter of Satisfaction” in a safe place)
4. The “Letter of Satisfaction” should also be filed with the Recorder of Deeds office in the county where the property is located
5. If buying from an estate, make sure there is documentation to prove inheritance taxes have been paid
6. Your broker or attorney should avoid having funds held in escrow to pay taxes, as the title company will overestimate the amount of tax owed, and it may take a while for you to get your money back
I can’t stress how important it is to have representation. Some home buyers think they can do this themselves, but too often, they don’t realize that they aren’t saving time and money. It can cost them, and they may not realize they lost out because they don’t have the experience and don’t know their rights.