Buying or selling a home in Massachusetts can be both exciting and daunting, especially when title defects come into play. Ensuring a clear title is crucial to a successful property transaction and is typically required under any standard Massachusetts purchase and sale agreement. This guide will explore some examples of title defects, the seller’s role in resolving them, the extension process, and the importance of owner’s title insurance. Let’s explore how understanding title defects can make your property transaction experience smoother and more secure.
Common Title Defects
Title defects are issues that can affect the ownership rights and transferability of a property. Here are some common title defects to be aware of:
- Errors in public records: Mistakes in public records, such as clerical errors or incorrect information, can lead to disputes over property ownership. Typically, this issue frequently presents itself through typos in mortgage discharges at the registry of deeds. Even a small typo can render a document invalid, requiring correction.
- Unknown liens: Previous owners may have taken out loans using the property as collateral, and if these liens weren’t satisfied, they can become the home owner’s responsibility. Additionally, they might have been indexed in such a manner at the Registry of Deeds which made it difficult to locate, causing them to be missed during a title search.
- Illegal deeds: A previous property transfer may have involved a forged or invalid deed, affecting the chain of ownership. This would be one of the most severe issues that could occur, resulting in a total failure of title.
- Missing heirs: Unknown or missing heirs can claim ownership of a property, causing disputes and potentially invalidating a sale. They may have been given defective notice as part of a probate proceeding, no notice at all, or a will could have been invalided after the fact causing the property to pass to someone else.
- Boundary and survey disputes: Inaccurate property boundaries or conflicting survey results can lead to disputes with neighbors over land ownership. This could include a shed, a house, or another structure straddling the property line as well.
- Easements and rights-of-way issues: Easements or rights-of-way can limit your ability to use your property as you wish. Especially if an improvement was made in the easement area impeding the easement holder’s access to the property.
Role of the Seller in Resolving Title Defects
According to the standard Massachusetts purchase and sale agreement, the seller is responsible for delivering “good title” to the buyer. The home buyer, ordinarily, does not need to close unless the title is clear. So, when a title defect presents itself, there are some important things for the seller to remember:
- Delivering good title: The seller must ensure the title is free from defects, providing a clear and marketable title to the buyer. Depending on the issue, this may cause a delay in the closing.
- Using reasonable efforts to fix title defects: The seller must use reasonable efforts to resolve any identified title defects before the closing date. The seller must act with prompt diligence and cannot ignore the issue.
- Coordination with the closing attorney and seller’s counsel: The seller’s real estate lawyer should work closely with the home buyer’s attorney and the lender’s attorney to coordinate and resolve the issue in a timely manner.
Challenges in Resolving Title Defects
The seller of a home may face major obstacles when dealing with title defects. If they purchased an owner’s title insurance policy when they purchased the home, it typically helps resolve the situation promptly. Otherwise, some common problems a seller may run into include:
- Financing difficulties: Title defects can make it challenging for a buyer to secure financing, as lenders may be unwilling to approve loans for properties with unresolved title issues. This could delay the transaction or even cause it to fall through.
- Legal disputes: In some cases, resolving a title defect may involve legal disputes or litigation, potentially increasing the time and cost involved in resolving the issue.
- Loss of potential buyers: If a title defect is discovered during the due diligence process, potential buyers may decide to back out of the transaction or seek a reduced purchase price to account for the risk associated with the title defect.
- Impact on property value: Unresolved title defects can negatively impact a property’s market value, making it more difficult for sellers to achieve their desired sale price.
- Time-consuming process: Resolving title defects can be a lengthy and complex process, particularly if multiple parties are involved or if the defect requires extensive research, negotiation, or legal action. Certain issues can be resolved promptly. Others can take weeks, months, or even years.
The Extension Process and Potential Challenges
In some cases, sellers may need additional time to resolve title defects as part of their real estate closing in Massachusetts. The standard purchase and sale agreement allows for an automatic thirty day extension for this purpose.
However, extensions can present challenges, especially for home buyers. These challenges include:
- Selling and buying on the same day: Buyers who are selling their current home and purchasing a new one on the same day may face complications if the seller requires an extension to resolve title defects. They may have no place to live.
- Lease expiration: Buyers who are renting and have a lease expiration approaching may need to make alternative living arrangements if the closing date is delayed due to a title defect.
- Mover scheduling: Buyers who have scheduled movers for a specific date may need to reschedule or find temporary storage solutions if the closing is postponed. Or, they may lose a deposit they have placed with a moving company.
- Rate lock expiration: An extension can result in a buyer’s mortgage rate lock expiring, which could lead to higher interest rates on their loan. The purchase and sale agreement may include protective language allowing the home buyer to terminate in the event they have lost their rate lock.
The above may result in a home buyer looking to a seller for compensation.
Title Insurance: Protecting Your Investment
Obtaining title insurance is one major way to safeguard your investment against title defects. Title insurance is a one-time purchase made at closing that protects homeowners from financial losses resulting from title defects. While title insurance may not cover every risk, it can provide valuable protection against many unforeseen title issues. In essence, for a one-time fee at closing, you are helping to ensure your ability to sell your property at a later date.
Understanding title defects and their impact on closing is crucial for ensuring a smooth and secure property transaction. By being aware of common title defects, the seller’s role in resolving them, the potential challenges of the extension process, and the importance of title insurance, both home buyers and sellers can be better prepared for a successful transaction. By keeping these factors in mind, you can navigate the complexities of property transactions with greater confidence and peace of mind. If you are buying or selling and you are in need need of a real estate lawyer in Massachusetts, contact us. We’d be happy to speak with you.