So you’ve been pre-approved to buy your dream home. That’s fabulous! But what happens when the bank or your broker calls to tell you there’s a “glitch” with the property? Many things can happen when buying a home - termite damage, poor water quality, even fences that cross your neighbor’s property, but buyers may not realize there are other problems - invisible ones - which can throw a wrench into even the simplest of transactions.
A “bad title”, according to Bouvier’s Law Dictionary, is “...one which conveys no property to the purchaser of an estate." While this is an uncommon situation, it can happen from time to time, especially when individuals have bought and sold the property in years past without the benefit of having a title search done on the property.
Lenders will require title insurance coverage before issuing a mortgage, and it’s after receiving the “title report” - which is normally requested early in the transaction - that problems may be encountered.
One of the most common defects in a title is a “gap” or “break” in the chain of title (list of property transfers). This problem can usually be repaired fairly easy with either an affidavit or a new or corrective deed. In the case of a mortgage which was paid off but no record of payment can be found, a satisfaction of mortgage which is filed in the public records will resolve the issue.
Other problems with title can include missed judgments, clerical (scrivener’s) errors, and past owners or heirs who did not convey out their interest in the property. The title company’s search will find these problems and resolve them before issuing insurance to either you as the new owner, and/or the lender.
In some cases, when an affidavit, satisfaction or new/corrective deed won’t resolve a complicated, erroneous title, a quiet title suit is required to ensure you as the buyer will have sole ownership in the property and you won’t have to worry about any “lost heirs” coming out of nowhere to claim their inheritance!
So if your broker suggests you buy an owner’s title insurance policy, do it! It’s the only kind of insurance in which you pay a premium once (at closing) and enjoy its protections the entire time you own the property.