Specify the Quality of Title

Posted on: May 9, 2014


Real estate titles may be subject to a wide range of liens and encumbrances. Homeowners associations can file liens for outstanding dues and assessments; tax offices can file liens for outstanding taxes; a judgment against the homeowner could result in a lien against the property. It’s always a good idea to ask homeowners about title issues, but you should still write language specifying the quality of the title into a purchase agreement. A title search may reveal unexpected title encumbrances, including issues that the homeowners might not know about, which could make a huge difference in the value of the property. Protect your interests by insisting on a quality of title clause.

Specify Clear TItle

When you add language to a purchase and sale agreement regarding the quality of the title, specify that the title must be clear or you have the ability to renegotiate or cancel the deal. This gives the homeowners incentive to resolve any outstanding title issues before you close, and saves you the trouble of doing it yourself, as well as the potential cost of serious title issues. In many cases, mortgage lenders won’t close a loan unless the title is clear. Even if financing doesn’t make it an issue, though, you should specify clear title to protect your interests.

Named Exceptions

A clear title clause may include named exceptions. The current mortgage lender has a lien against the property, for example, until you close on the property and the loan is repaid. Additionally, utility companies may have easements on the title, which in most cases you’re powerless to object.

These types of exceptions may still remain on a clear title, but you should name these exceptions in your quality of title clause. List the mortgage company that has an outstanding lien, as well as any utility easements or other claims against the title. If you see any title problems aside from these named exceptions, your clear title clause should kick in and give you the ability to renegotiate or withdraw from the deal.


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