For Sale by Owner News and Articles
Working with an Escrow Officer and Resolving Title Issues
Once your escrow has been opened, you will receive a copy the Preliminary Title Report or Abstract of Title, which will list certain facts about the property that you are selling or buying. This report will reveal, among other things, any liens, encumbrances or judgments against the owner of record and/ or against the property itself. Certain things, such as easements or property taxes, legal descriptions and survey maps are things which will be included in the preliminary report, but which don't normally cause any reason for concern. Other factors, such as an unknown right-of-way, a utility easement, an unknown "lis pendens" (notice that a lawsuit is pending) or judgment against the seller, could delay or slow down your closing and jeopardize the sale, so these items need to be resolved well before the projected closing date.
Depending upon the number of documents the examiner must review, a title search may take anywhere from one hour to two weeks to complete. The report compiled from the title examiner's findings, the first of many escrow documents you will receive, provides information to show the condition of title as of a specific date. It will show the vested owner's name as disclosed in the public records, the current real estate property taxes, including whether they are paid or unpaid, the outstanding liens, restrictions, easements or other types of encumbrances, the property's legal description of record, the conditions under which the title company will issue title insurance, and the plat or survey map, showing the location and dimensions of the property as found in the recorded documents. For your escrow officer, this report is the key which unlocks the door to completing escrow. This information indicates what items, if any, must be cleared up in order for title to be conveyed from the seller to the buyer.
One common issue which may occur, is that the title report may reveal that the seller actually owns the property with someone else and that other party is out of town and he must be located and arrangements made for him to sign the closing documents. This can be solved by obtaining a power-of-attorney for the absent party. Sometimes the title shows up as being held by a trust, or it might be in probate pending final disposition. Either situation would delay the close of escrow. The proper parties named in the trust must be located and a final probate settlement must be obtained. These are situations, that if taken care of in ample time, can be solved without postponing the closing.
Delinquent taxes, assessment bonds or tax liens, and judgments, all can become a problem to delay the close of escrow. Judgments filed in a county other than the county where the property is located will also show up on the title report. These outstanding judgments will have to be paid at closing. Easements and rights-of-way need to be located to be certain that they aren't located right in the path of your proposed swimming pool or other alteration you may be planning to make on the property. Take the time to inspect the property, personally, with the title report in hand, and ask questions about it when you do. Don't assume that a fence, a row of trees, or a hedge makes the actual boundaries. Planning ahead and taking care of these potential problems will assure that your closing goes smoothly.
One type of judgment that is not uncommon, is a judgment against a person with a similar name to yours. Most title and escrow companies will accept an affidavit from the affected party that states he is not the party named in the judgment. Often times a judgment from a creditor, say a major department store, will show up and that judgment is also against a person with a similar name. Your escrow officer or title attorney will contact the department store or creditor in question, and resolve this issue. It may be that a judgment shows up that you weren't aware existed, but which is in fact your obligation. These will have to be satisfied or paid off before escrow can close. Often if money is owed, the creditor will agree to a release just as long as the monies owing are paid at the close of escrow.
There are other things you might check that affect title to real property, things which normally do not appear in the public records. They include zoning restrictions, renters' unrecorded leases or month-to-month rights, water rights, persons with a right to title by adverse possession, and work being done on the property that could possibly lead to the filing of a mechanic's lien after you buy the property. Zoning could be a potential problem if you plan to construct, for example, a rental apartment on the property and the zoning only allows for a single family residence.
Other defects such as liens and encumbrances or Covenants, Conditions, and Restrictions, need to be looked at carefully as soon as your receive your title report. Covenants, conditions, and restrictions, or CC & R's for short, are limitations placed upon the use of the land by its owner. They are usually included in the deed and specify what uses will be permitted or prohibited on the land. They are created in appropriate deed clauses, in special agreements, or in a general plan affecting the entire subdivision. Read these conditions carefully, as you will be obliged to abide by their terms. Covenants, conditions and restrictions could prohibit you, for example, from certain plantings on your property, putting up fences, operating a business, use of certain roads, pet restrictions and other limitations. Be sure you can agree to all the conditions relative to your property.
Problems can occur in the tax description of your parcel of land. A small discrepancy between the tax description and the survey is normal, but a significant difference can become a problem. If the tax description is too small, for example, portions of the parcel may be part of another tax block and lot and you could loose that land due to failure to pay land and realty taxes. A tax description that describes only a portion of your parcel needs to be corrected. Your escrow officer or title attorney can see that this issue is resolved before closing.
Another issue that may arise relative to the title report is a "lis pendens" or a notice that a lawsuit is pending may show up. Such a notice warns anyone with an interest in a property that there's a dispute in progress over the title or possession and that any later buyers, lenders, or tenants will be bound by the final resolution. Most title companies will refuse to insure the title of a "lis pendens" property. One example of a situation where a lis pendens could be filed is when a seller is trying to back out of a sale and a buyer is trying to preserve his right to purchase, so the buyer records a lis pendens to assure that nobody else will be able to buy the property until the dispute is settled.
Working closely with your escrow or closing agent on resolving any title issues which may occur will assure that the escrow closes as scheduled. The key point is to stay in contact with your closing agent at every step of the escrow process, particularly in regard to issues found in the preliminary title report or abstract of title.
Sandy Gadow is the author of All About Escrows and Real Estate Closings published by Escrow Publishing Company. A prominent authority on title and escrow, Sandy is also a licensed mortgage broker and member of the California Escrow Association and American Escrow.
The information is designed to provide accurate and authoritative information in regard to the subject matter covered. It is printed with the understanding that the author is not engaged in rendering legal or accounting service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.