Sometimes referred to as a ‘cloud on title,’ a title defect may result in an unmarketable title, thus potentially delaying or barring a sale of the property.  Title defects are typically identified through a search of the public record and subsequent title examination.  When the examination identifies a title defect that needs to be cured before a policy is issued, the defect will be reflected on the commitment to issue title insurance. There are times when the sellers/owners might not be aware of a cloud on title until the commitment for title is issued. 

Identification of title defects is important because their impact can be far reaching. A good title partner will help identify potential means to cure the defect, frequently, without a delaying the closing.  With good communication, a title defect is rarely a total bar to successfully closing a real estate transaction.  The title partner, when included in transaction communications at an early stage, is an invaluable source of guidance and information to ensure the closing proceeds timely and smoothly, even in those cases where a title defect is discovered. 

While almost all title defects can be resolved, their impact and the steps necessary to remove the defect can vary greatly.  Examples of title defects commonly identified in a commitment to issue title insurance include:

• Improper recording of ownership
• Incorrect legal description on a transfer or encumbrance document
• Failure to include the signature of a spouse or other necessary third-party
• Prior liens or encumbrances that have not been satisfied of record (such as tax liens, mechanic’s liens, prior mortgages, municipal utility liens, etc.)
• Failure to follow proper recording or filing procedures for real estate documents

Every title defect, like every transaction, is different. While almost all title defects can be resolved, its resolution depends on the facts surrounding the identified defect and the laws of the jurisdiction.  However, in each case, a resourceful and capable title partner will be able to identify a method to cure the defect and ensure a timely closing.

Many title defects can be resolved by recording a corrective, or supplemental, document to properly repair the chain of title.  Errors in the legal description, missing spousal signatures, or improperly recorded documents are often corrected simply by recording a new document that corrects the prior error, unreleased mortgage or missing interest.  Similarly, the parties may be able to satisfy prior liens by depositing funds into the court or allocating escrow funds to satisfy the lien at closing.  This is particularly useful in removing utility liens, mechanic’s liens, unpaid taxes or other municipal liens. 

Some defects may require litigation to cure the cloud on title, such as a missed ownership interests, foreclosures, bankruptcies or mechanic’s lien claims.  However, litigation is typically the last resort. Even in cases involving complex or contentious litigation, your title partner should be able to offer options that allow the transaction to close, perhaps even on schedule.  Title companies may be able to insure over the identified defect in cases where an indemnification is offered, or in place, from another title company or third-party. 

As a real estate professional, the best way to ensure that the title process runs smoothly and results in a timely closing is through early, frequent and good communication between all parties.  The sooner defects are identified, the greater the number of options available to remedy the defect without a delay to the closing.  As your title partner, we can offer creative, transaction-focused solutions when problems arise that can provide you and your clients with peace of mind.

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