Sunday, February 18, 2007
By ANNA THIBODEAUX
The Huntsville Times
Agents advise you to buy insurance to be on the safe side.
Clearing the title on your prospective new property can be full of horror stories that can strike now or years down the road, but don’t fear, we’ll try to guide you safely past the perils of the title jungle.
Errors or typos in deeds, judgments against prior owners resulting from unpaid debt such as credit cards that resulted in liens on property, or a new house bearing mechanics or materials liens for unpaid work or materials can all be lurking out there – waiting to stall or increase the cost of your property sale or purchase, says Bo Harrison, real estate attorney and attorney for the Huntsville Area Association of Realtors.
“We attempt to resolve problems prior to transactions closing, but problems still occur,” Harrison says. “If you buy property without a title check, you may be buying a pig in a polk.”
“Title clearance can be awful,” says Larry Perreault, broker with Century 21 Steele and Associates in Huntsville. “Individually, there are all kinds of horror stories of individuals losing property. In 1985, the state tightened appraisal standards to improve accuracy in record keeping.”
While you don’t run into title problems every day, Perreault says they’re not rare either.
Harrison and Perreault strongly advise buyers to have a spot survey done of property and to purchase owner’s title insurance.
“We do have the title checked, and a person buying a house must decline title insurance for us to go forward,” Perreault says of property transactions. “Lenders typically demand (insurance), which solves some of the problems.”
He says title insurance is affordable and wise when you see what can happen to you as a home owner if a title problem arises.
Harrison says title problems are why the local Board of Realtors started including owner’s title insurance nearly 14 years ago as part of the Realtor contract on residential property sales. Typically, the seller and buyer share the policy cost, which incurs a one-time premium. Perreault adds that there is no deductible on this coverage.
But not all title policies are the same, so here’s what you need to know to better choose your protection.
“If you get owner’s title insurance, the title company will solve the problem or pay you,” Harrison says. “If you buy a $250,000 house and get that much in insurance, then the insurer will resolve the problem or pay you $250,000. You have a multi-million company behind you, and they do perform. The buyers also need to be sure matters of survey are insured, and that requires a spot survey in most instances.”
Enhanced title policies may cost more, but will cover you from nearly all claims – including liens – that could come with the property, he says. Perreault says insurers, “can’t prevent the fire, but they can ease the pain and correct the situation.”
In addition to dealing with errors on titles, you could end up dealing with a mechanics lien or materials lien placed on property by labor or suppliers who were not paid for work or materials used on your house. The insurance would cover you, and then attempt to recover the loss from the previous owner or builder.
In a transaction, Perreault says the seller certifies he or she paid for all work or supplies applied to the property in a statement included in transfer documents, but problems are still possible. One builder claimed to have covered all this, he says. Then the market slowed and the builder lacked cash, so workers and suppliers filed liens, which sent the builder to jail for making a false statement.
Harrison says they’re seeing more problems that could have easily been avoided with a spot survey.
“Once lenders required them when financing real estate, but they have gotten away from that to save money,” he says. “We see more and more problems with encroachments, with a portion of the house outside the property line. A survey would have identified that problem and resolved it before closing.”
Last year, Harrison says a client bought a lot in a cul-de-sac for a house, but a survey revealed it was too small for it because a neighboring builder built 12 feet over the property line. That builder had to buy back the land, which became his $60,000 problem.
Perreault says title errors are more typically found in rural property, where owners have been known to guess property lines and start selling land, rather than get a survey. He witnessed a case where a half-mile of fencing was misplaced by 10 feet, so the owner didn’t have all the property he thought he had.
In another case, a misplaced decimal pushed property a half mile farther away from where the buyer anticipated. “A farmer made the mistake and required another deed to correct it,” he says. “The problem didn’t show up until the people were selling the property. We ended up having to find the seller and get them to a sign a corrective deed, which they were leery of, and we finally convinced them it had to be signed.”
Foreclosures are another notorious title problem area, Perreault says. Because one legal office per state is typically used to handle foreclosures, it isn’t uncommon to see the wrong name or property identification, and that resets the process to the beginning and can add two or three months to it.
Inheritance can also create problems if the owner didn’t have a will, he says. In one situation, an owner financed a relative’s property. The relative died several years later, and the family assumed the house would go to the owner. However, Perreault says a title check revealed the property had been deeded to the deceased relative, who had not left a will. Luckily no relative disputed it, but there was no clear title, so the presumed owner had to reclaim it by foreclosure to get clear title.
Harrison and Perreault agree that resolving title problems can take time, money – and potentially the property itself.
“You have to figure out the simplest solution possible, and it requires people working with each other,” Harrison says of resolving title matters. “Fortunately, most of the lawyers who do real estate work in this area try to help each other, and all of us are going to find problems. None of us are perfect, but as long as we try to help each other the clients get what they want – clear title to their property.”