he or she has a legal right to use the property any way he or she wants under the law, and that there will be no questions as to who owns the property. A buyer assumes these things because the purchase and sale contract states that the seller is to convey a good and sufficient warranty deed, conveying good, insurable, marketable title, free from all encumbrances, except as may be acceptable to buyer and buyerâ€™s lender.
A purchase and sale contract also generally specifies encumbrances the seller knows are against his or her title and which usually existed when the seller bought the property. Such encumbrances typically include zoning ordinances, subdivision map notes, building restrictions, use restrictions and easements of record.
The buyerâ€™s assumption when he or she receives title, then, is that the propertyâ€™s title is clear and there are no encumbrances. What most buyers donâ€™t understand, though, is that marketable title is not the same thing as a title with no encumbrances.
Marketable title is title to property that is not subject to a claim or defect that would present a real and substantial probability of litigation or loss that would prevent the property from being sold at a fair price to a reasonable purchaser or mortgaged to a reasonably prudent party as security for a loan. In laymanâ€™s terms, this means that buyers of property expect to receive a title free from reasonable doubt, allowing that buyer to hold and use the land in peace, free from the likelihood of litigation, and that the title to the property is clear enough to be sold at fair market value or pledged as security for a loan without hassle.
What, then, are encumbrances? Encumbrances are anything that affect or limit the fee simple title to a property. Fee simple title is the maximum and best possible right of ownership of real property, as contrasted with a life estate or a leasehold interest. Examples of encumbrances include mortgages, unpaid tax liens, mechanicâ€™s liens, judgments, zoning ordinances, subdivision map notes, building restrictions, use restrictions and easements. All of these are usually recorded on the land records except for the zoning ordinances and building restrictions as they are usually part of the municipalityâ€™s regulations.
Encumbrances can be separated into two groups. The first group includes those encumbrances that a seller is powerless to remove and that can restrict the use of the land, but normally do not render title unmarketable.
These would commonly include building restrictions such as setbacks, zoning ordinances, subdivision map notes, and easements for such things as ingress and egress, a pedestrian walkway to access a beach, or even parking, and are the kind that a buyer agrees to accept. While such rights or interests may not prevent the transfer of fee simple title, they could diminish the value of a property.ttention to detail, we
Furthermore, while building restrictions, zoning ordinances, subdivision map notes and eaements can restrict the use of oneâ€™s land, their existence normally does not render title unmarketable; however, substantial, existing violations of zoning ordinances do render title unmarketable.
The second group includes those encumbrances a seller has the power to remove or cure and includes
mortgages, unpaid tax liens, mechanicâ€™s liens and judgments. How does a seller cure these or have them
removed as encumbrances? The seller satisfies them by coming to an agreement with the person or entity that filed the lien or judgment or by paying the monies owed and then recording a satisfaction or a release of the obligation on the land records.
REO or bank owned can not meet marketable title. Typically you are issued a Certificate of Title. Given your persistance and attention to detail I would welcome the opportunity to meet and speak with you. You can reach me directly at firstname.lastname@example.org or call 941.313.1234.
Here is link to what title insurance is and what it does for the title and ownership:
If paying CASH on any property I would highly recommend hiring an attorney to review the title committment before closing along with any closing paperwork. If getting a mortgage it is less crucial since the lender will do their own due diligence review of the title insurance policy comittment to protect their (and your) interests.
Here is a highly experienced Real Estate Attorney:
Larry Fuentes, Fuentes & Kreischer http://www.FKLaw.net
Hope this helps.
All the best,
Alma Rose Kee, PA
If you are purchasing a property with a mortgage, you have little to worry about because your lender is not going to loan on a property with questionable title. The title insurance company will do a title search and will have exceptions or requirements in order to insure the title policy.. A title policy is a requirement for a mortgage. If making a cash purchase you can still hire your own title co to do a search. Good luck.
I must say, Lynn and Alma did an exceptional job at giving you detailed answers.. I would just like to add that the only way to properly make sure you are being protected with a bank owned property would be to hire a Real Estate Attorney.
Unfortunately, with bank owned properties, the buyer typically does not have any say in the title company and most title companies working with REO properties are turning out so many, that errors are inevitable. In Real Estate, many times, it also comes down to a timing issue....there is a chance something will slip through the cracks.... Although I have closed quite a few bank owned properties without a hitch, I did have one where there was a problem with the title and problems continued for 6 weeks until we could get full resolution on the home.
***Good Luck in your home search....by the way...be careful, not all BANK OWNED are a "smokin" deal. I've had 2 homes sell (I helped the sellers to sell the homes, I was not involved in their purchases) last month that were bank owned properties that were purchased ABOVE market value...it happens more often then you would imagine. Don't limit yourself to just Bank Owned/REO properties. Many times you will do better with "Joe Seller" who bought his home BEFORE the housing boom and is not upside down.
Charlene Weston (Cobelo)
Smith and Associates
On a bank owned property sold on the open market (and advertised in the MLS) you will normally get a title insurance policy paid by the seller to protect you in the event a prior owner tries to claim there was a robosigner or other reason why they have the right to reclaim the property.
I'm not an attorney but I believe the Title Insurance policy would protect your interest. Your lender will also require a title insurance policy.
If you're paying ALL CASH then absolutely hire an attorney to review your Title Insurance Committment and all of your contracts and closing documents.
If you're getting a mortgage you have some protection because the lender's underwriter will also review your Title Insurance.
All the best,
It's not urban myth. Titles have been lost. How many? I haven't seen research on this question. But no matter, you're concerned about securing a clear title. As a matter of course, title insurance companies are paid to research and discover any problems in this regard before the closing on a home. You should discuss this with your agent, or a lawyer, if you're not using an agent.
It is true questions have arisen amid the foreclosure crisis. But the problems with title the banks are experiencing come from the securitization of mortgages. In theory title was to be passed along with the securities as they were traded. No surprise: theory and fact are two different things here. If you want to research this topic more, Google MERS or Mortgage Electronic Registration Systems. Essentially, homeowners have challenged lenders to produce title and in some cases have won in court. The upshot is banks, which in recent years have gained a reputation for sloppy work, can have trouble locating title. How did they end up with a home without a title search? That in part is what the foreclosure crisis is about. These questions will continue to arise as long as homeowners facing foreclosure keep successfully challenging the lender's right to sue. The instances may be the exception, but they don't exactly inspire confidence.
Your best bet is to make sure a title insurance company does a title search. The title company also reports any liens against a property.
BTW: Registering titles with local governments ended in 1995.
Best to you,
of Longmont, CO
Make sure you choose an experienced title company and with any purchase, but particularly with an REO you should always get Title insurance.
Compared to the cost of the home and other closing costs the price is very reasonable and well worth the piece of mind it affords.
The best guarantee you will receive on a foreclosure is title insurance to protect you financially should something happen. My advice to buyers is to always pay a few hundred dollars extra and have a title company of your choosing process your closing if you do purchase a foreclosed property.