When you sell a house, potential buyers don’t want to inherit your debts or legal problems. That’s why most real estate transactions include a Title Insurance policy. Title Insurance protects or insures that the buyer gets “Clear Title” to your property. A clear title means that there are no liens, claims, judgments, or problems with the title. The aim is to define the undisputed owner of the property and to make sure there is not a clouded title. If you are selling the property, it is up to you to work with the local title company to make sure the title is clear. If you can’t, you may have a cloudy title, which makes it hard for you to sell a house.
What is a Cloudy Title?
When the title to a property is not “Clear” we refer to it as “Cloudy” or Clouded”. Title clouds diminish both the value and marketability of a property. Examples of these clouds include:
Mechanic’s Lien
A lien filed by past contractors can cloud the title of your property. Contractors expect timely payment for their work, and if they don’t receive it, they may sue or file a mechanics lien against the property. This lien must be settled before completing the sale of the home. To avoid issues, always obtain a receipt for full payment and ensure the contractor signs a lien release.
We purchased an almost 100-year-old house in Marlborough Heights of Kansas City once that had several very old Mechanic’s Liens filed. The seller could not sell their house because they could not find the contractors who did the work to get them to release their liens. We teamed up with our title company and attorney to file a quiet title lawsuit and release these liens.
Failure to File a Notice of Intent to Sell.
This is a Missouri thing, that puts a cloud on the title. There is a law in the state that requires a person who completes renovations on a property to file a form called a Notice of Intent to Sell 45 days before the close of the sale.
As people who renovate homes, we usually file this form when we purchase the house, so in 45 days, 90 days, or however long it takes us to fix the home and sell it, we are ready to close. It puts all of our contractors on notice that they need to get their mechanic’s liens filed if we have not paid them.
Homeowner’s Association Assessment Lien
We purchased a townhouse in Teetering Rocks in Kansas City Missouri several years ago. The homeowner was in foreclosure for not paying their HOA dues for several years. We were able to pay this lien, stop the foreclosure, and purchase the townhouse.
Federal or State Tax Lien
A state or federal tax lien is placed on your property if you fail to pay state or IRS income taxes. The government insists on payment. You can sometimes negotiate with the taxing authority. They may accept a partial payment, allowing you to sell the house. If they demand the full amount, you may face foreclosure. In a foreclosure, the government might not receive their money if the process is handled correctly.
Judgment Lien
These liens are generally created when someone wins a lawsuit against you and then records that judgment against your property. This can be from loans, other debt, civil claims, or just about anything someone could sue you for and obtain a monetary judgment, including unpaid child support, all can cloud the title.
Misspelled Property’s Address
This is generally a typo that does not get caught. Our son had this issue when he purchased and a few years later sold a condo that had once upon a time been two condos combined into one. A developer had purchased a building of smaller condos and combined them into larger ones. Somehow the legal descriptions didn’t get changed right and the county was foreclosing for non-payment of taxes on a legal description that had not been changed or combined as it should have been. No one was paying taxes on that parcel, which happened to be half of my son’s condo. The title company and insurance fixed the problem.
Unreleased Mortgage Lien
We see this one all the time. When a home is sold and the mortgage is paid off, the lien holder is supposed to issue and file a lien release after the fact. But quite often it does not happen. Especially when the lender is a private individual and not a bank or a lending institution.
Once upon a time back in 2008, there was a seller who thought her grandfather’s house had been foreclosed. He had passed away, she lived in another state and as he owed more than it was worth, had let it go, she thought to foreclosure. But then the county hunted her down and started sending her fines for code violations and for taxes. She could have just let it rest, but she gave us a call. Rather than foreclosing, the mortgage company had sold the loan to a company that had sold the loan and after about 6 sales no one knew they owned the loan. It took us 6 months of phone calls to finally track down the responsible mortgage company for her, and they agreed to negotiate on what was owed, allowing us to buy the home through a short sale.
Improperly Recorded Deed
The deeds are correct, they are signed, but either they just don’t get recorded or they get recorded incorrectly. We often see them filed incorrectly when there are several different phases of a sub-division or two similarly named sub-divisions in a county.
Easement
An Easement is when someone else has a legal right to parts of your property. For example, usually the front 4 to 10 feet along the street, and sometimes the back 4 to 10 feet belongs to the utility company.
A good example of a huge problem with this is at the Lake of the Ozarks a few years ago. All lakefront properties give an easement to Amren, the utility company that actually owns the lake itself (it was built to generate electricity). However these easements were ignored and not recorded properly on almost all properties for years. Which resulted in many decks, garages, and even parts of houses being built on the easement. For a while, title companies would not issue title insurance, so lenders would not lend, so houses could not be bought and sold. All the title companies came together to negotiate a solution with the utility company.
Unpaid Property Taxes
If you don’t pay your real estate taxes on your home, a tax lien is put in place against the home. This lien and all of its interest must be paid to clear it up. If left unpaid, eventually the county will foreclose on your home for unpaid taxes. We’ve purchased several properties from people just before the county foreclosed.
Other Liens
- Failure to transfer property rights (mineral rights, etc.) to the appropriate owner.
- Pending lawsuits (lis pendens) over ownership rights to the property.
How to Clear a Clouded Title
There are several ways to resolve a cloudy title. The most common method is by first locating the lien holder and having them sign a quit-claim deed. This is a deed that says they quit all claims to the property. When the lien holder has proof that the lien has been satisfied, they sign the quitclaim deed.
4oThis releases any interest the lien holder has in the property.
Do keep in mind that while a quit-claim deed is a great way to release liens, you would not want to acquire property via a quit-claim deed. I could quit all my claims to the Brooklyn Bridge to you, but as I own nothing and have no real claim, no ownership, neither would you.
The second and more complicated method is through the commencement of the action to quiet title. This is an actual lawsuit that determines the validity of any challenges or claims to the title of a property. The outcome would “quiet” any claims and/or challenges to the title.
Why Getting a Clear Title is Important
It is certainly best to take care of these issues before putting a property on the market but unfortunately, this isn’t always possible. Homeowners are often surprised to find liens from subcontractors they do not know of. Additionally, improperly recorded easements are often surprises that are discovered only upon a new survey or Improvement Location Certificate.
Steeling the Deed
There is always the potential that someone will file a claim on your property fraudulently to steal your property. We have a good friend who is an attorney, Jeff Watson, who recently held and recorded an informational seminar online about the subject of fraudulently stealing deeds that you can watch online.
Title clouds are generally resolvable with the right knowledge and a little legwork. This is why the choice of good people to help you through the process is vital. You can manage the process yourself as the owner with the help of a good title company. You can also work to find a good Realtor or Cash Buyer who can assist you and the title company.
Over the years we have worked through some very difficult cloudy title issues. We have the knowledge and several different title companies and attorneys that know how to navigate some very stormy, cloudy titles to obtain title insurance. If you need help, take a minute to learn more about us and the tell us about your house to start the conversation. We will listen and take the time to address your concerns and answer your questions, walking you step by step through the process.
