What Is a Clean Title and Why it Matters

A clean title is critical for real estate transactions, and this post will explain why.

What is a Clean Title? Why it Matters When Buying Real Estate

A clean title means the property has no ownership disputes, liens, encumbrances, or other unresolved issues. What are some problems that could cloud a title? Here are a few:

• Liens: A lien is a legal claim against a property from debts the owner failed to pay. Typical liens are for taxes, legal judgments, mortgages, and contractor debts. Since unresolved liens follow the property, they can cause problems for the new owner.
• Ownership Disputes: In some cases, multiple parties may have conflicting claims to ownership. This can happen due to inheritance issues, divorce settlements, or errors in past sales. A dispute could inhibit a person’s right to sell the property and cause problems for a new owner.
• Boundary Disputes: Unclear or contested property lines can create disputes between neighbors and impact property rights. For example, if a neighbor claims that part of the property is theirs, it could delay or derail the sale.
• Fraud: Having a clean title can also protect buyers from fraud. Someone may have entered a false deed into the records or falsified documents in other ways.

Now, let’s take a closer look at why clean titles are important.

It Clarifies Ownership

A clean title verifies the owner has the legal right to transfer ownership. It ensures that no disputes could challenge ownership and inhibit a sale. Without this clarity, a buyer could risk legal battles with claimants. A clear title provides peace of mind and protection from the cost and stress of these legal issues.

Avoiding Liens

It is important to remember that liens don’t follow the property owner who failed to pay a debt. Liens are against the property and follow it through sales. If you buy a property with a lien, it becomes your responsibility. A clean title ensures no outstanding liens for the buyer to worry about.

Securing Financing

Lenders require a clean title before issuing a mortgage. Knowing the title is clean protects the lender’s investment from these issues. Lenders require a title search as part of the loan terms. If the search discovers a defect, the loan might fall through.

Protecting Your Interests

Buyers can protect their interests from title defects in a few ways. The first is to order a title examination. Most lenders require it, but you should ask for one even if it isn’t. Another step is to buy title insurance. Your lender will require insurance to cover their interests, which may not protect the buyer. Getting owner’s title insurance protects your interests from issues that may have slipped past the title search.

Do you need to ensure a clean title for a property purchase? Click here to contact the First National Title & Escrow team. Our title search and insurance services can provide the peace of mind you need.

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