There is a poster I keep in my office entitled “The real estate closing”, and it's made up of three panels. The first panel has all of the participants in the closing sitting straight up in an orderly fashion in a rowboat with oars ready to get started. The appraiser, the lender, the real estate agents, the surveyor, etc are all there.
The title closer is at the front of the boat with a megaphone and says “We're all ready now. Start the closing.” The next panel shows everyone in the boat paddling hard in all different directions. The last panel shows them thrown all over the boat, hanging over the sides with the oars sticking up at all different angles and the title closer saying into the megaphone. “What time is good to reschedule?”
Unfortunately this poster, while humorous, is all too often accurate. There are so many things that have to line up just right to have a successful real estate closing. One of the main things is getting clear title. Here are two of the most common title problems that can kill your deal.
Breaks in the chain of title
This happens when there is not a continuous chain of deeds showing title transferring from party A to party B to party C, etc. Somewhere along the line a deed is missing. When this happens the title company has to research where the chain of title broke down and get the missing deed recorded. It can also happen when a deed is recorded but the recording was not done properly or contains wrong information such as the legal description, names of the parties or the form of deed used or when a mortgage on the property has not been satisfied.
Many of these issues can be corrected with an affidavit from the people involved. The problem worsens when the break in the chain happened many years ago and the parties needed to correct the title are either unavailable, unreachable or even deceased.
When this happens the title company and the parties wishing to close must bring a “quiet title” action before the court. The law on quiet title actions varies from state to state. Some states have quiet title statutes. Other states allow courts to determine the laws regarding quiet title actions. Under common law principles, a plaintiff must be in possession of the property to bring a quiet title action, but many state statutes do not require actual possession by the plaintiff.
In a quiet title action you are requesting the court to rule on who is the proper, current owner of the title based on all of the facts presented. If the court rules that the seller on your deal is indeed vested in the title then the break in the chain of title is resolved and the closing can continue.
Encroachments onto the property
This is also a common problem. It is normally discovered after a survey of the property has been completed. The survey will show that a fence on the property overlaps one of the neighboring properties. It can also show that a structure on the property such as a deck or even part of the house overlaps. In this situation the encroaching property has in effect annexed a section of adjoining property it is not entitled to.
There are two main ways of fixing this issue. You can tear down the structure that is encroaching and move it to match your legal border. This is easy to do with a fence. But what happens when a part of the structure overlaps? It may be too costly or even impossible to remove the overlapping section without significantly compromising the integrity of the house. In this situation the best chance of resolving the issue is for the property owner to bring a claim to the court of “Adverse Possession.”
Adverse possession is a legal principle in which someone who has encroached onto the land of another for an extended period of time may be able to claim legal title to that land. The exact elements of an adverse possession claim may be different in each state. To prove adverse possession under a typical definition, the person claiming ownership must show that its possession is actual, open, notorious, exclusive, hostile, under cover of claim or right, and continuous and uninterrupted for the statutory period.
Basically this means you must prove that the encroachment was open and obvious for anyone to see and the owner of the property being encroached did nothing to correct the situation. The issue that can cause a court to deny a claim of adverse possession is the statutory time frame the possession must have been present. This varies but is normally anywhere from 10 years or longer. So if you are dealing with a relatively new house then the adverse possession has not been in place long enough and the motion will be denied. In this situation the only option is to remove the encroaching structure and more often than not the seller will choose to kill the deal rather than pay for the expense of doing so.
There are other less severe title issues that can cause problems as well. The best way to save your deal is to identify these problems as early as possible in your due diligence on the property. Have a title search done immediately. The last thing you want to happen is to be sitting at the closing table and end up with an oar smacking you in the face that you didn't see coming.
Daniel Doran is a 20+ year veteran in the real estate industry. He is a previous owner of a law firm, mortgage and title company. Daniel has also written several books on mortgage modification, short sales and real estate investing. He currently specializes in Commercial Finance and Real Estate Development and is a graduate of Manhattanville College and Brooklyn Law School. You can contact Dan at Buildings By Owner.