THE ROAD LESS TRAVELED (Title Defects)

THE ROAD LESS TRAVELED

A title commitment is the road map that guides the closing agent through the transaction. It provides the closing agent with a checklist of requirements to be satisfied in order to issue a title insurance policy at closing. Some typical requirements include, but are not limited to:

1. drafting a warranty deed conveying the property
2. satisfying a seller’s current outstanding mortgage
3. obtaining an HOA/Condominium estoppel certificate to ensure all assessments have been paid
4. obtaining a municipal lien search report.

The aforementioned requirements are for the most part easily satisfied and allow for a smooth ride to the closing table.

FORK IN THE ROAD…. What is a title defect?

Sometimes, the title commitment discloses speed bumps that require resolution by the Seller in order to be able to convey marketable title. Some examples of frequently seen title defects are:

1. satisfying a prior owner’s mortgage
2. correcting a previous error on a warranty deed in the chain of title
3. satisfying a past judgment encumbering the property
4. clearing probate requirements.

For this week’s blog, let’s focus on the requirement of a prior owner’s unsatisfied mortgage. Now you’re probably wondering . . . how could this happen? With the market’s current demand, we are seeing properties being listed for sale sometimes immediately after a closing. While a quick flip might be great for your client’s pocketbook, it does not allow the Public Records sufficient time to reflect recorded mortgage satisfactions timely. Another possible cause could be a recording error on the lender’s end; clerical errors/mistakes are easily made, particularly when a large bank handles the recording of the satisfaction.

SHORT PATH, BUT BUMPY RIDE… How does a title defect affect your closing?

Under both the Standard Residential Contract and the “AS-IS” Contract, a Buyer has five (5) days after the receipt of the title commitment to examine it and notify the Seller in writing of any specifying defect(s) that render title unmarketable (a “Title Objection Notice”). If the Buyer fails to object in the five (5) day window, the Buyer is deemed to have accepted title as-is. Once a Title Objection Notice has been provided to the Seller, the contract provides the Seller thirty (30) days to take reasonable, diligent efforts to clear the objection(s), defined as the “Cure Period.”

For this blog’s example, upon the title agent’s review of the title commitment, the title agent would object to the unsatisfied mortgage from the previous owner and begin to work with the Seller to cure the defect during the Cure Period. In most instances, the defect will be cured timely by reaching out to the prior owner and obtaining an original satisfaction for recording or connecting with the lender to ensure the missing satisfaction is timely recorded and all parties can proceed to closing. Crisis averted.

ALMOST THERE… What happens if the defect is not resolved within the Cure Period?

If the Seller is unable to cure the defect in 30 days, the Buyer has three options, at the Buyer’s discretion:

1. Extend the Cure Period, but not for more than 120 days;
2. Accept title as-is with the defect and proceed to closing; or
3. Terminate the contract and receive the earnest money deposit back.

QUICK PIT STOP….

It is important to keep in mind that the Cure Period is a fixed period that the contract provides the Seller. If this 30 day window extends beyond the contract closing date, the closing date is automatically extended. No closing extension required.

If you have any questions about title defects, the Cure Period, or how they could impact your closing, we urge you to consult with your local real estate attorney for guidance on how to ensure a smooth trip to the closing table.