Global Courant
How can a property title become unreliable? How do you protect yourself from the greatest of all problems: buying a house without the legal right to do it? Well, first we need to clarify one very important aspect.
Transferring a property title in the US does not necessarily require the presence of a notary or a lawyer. You can write the deed yourself and then the buyer can just keep it in their safe without recording it at the county courthouse and bring it out later, when the time is right.
This fact introduces a “empty spot” in the property title chain and later when we try to sell the home and the new buyer will ask for a title search we will find that there is a blank and therefore the title is not “negotiable as they call it in jargon.
Before buying a home it is always advisable to employ a title company i.e. a company that will do a full search of the title to make sure there is no gap in it. The title company will provide us with a statement that the title is negotiable and that there are no liens on the property. It also issues title insurance for the research task the title company has performed.
But be careful, title insurance only covers mistakes made by the title company when examining the official documents. So let’s say the title company overlooked a lien that was in place and on file prior to the search. And let’s say such a lien lowers the value of the house we want to sell. We may use title insurance to cover the cost of removing such lien.
But property insurance does not cover a valid deed that is not registered and that someone might have kept in their safe. So let’s say the seller sells the house twice: first to a family member who gets a deed directly from the seller and doesn’t record it, and then to you, through a proprietary partnership. You buy the house well and after some time the relative comes to you with his deed and shows that it was notarized before you bought the house. This will void your deed and you will need to hire a lawyer to rectify the matter, but you may not be covered by the property insurance at all.
That’s why it’s always good to read the title insurance contract and check any exclusions from coverage. Or even better, it’s advisable to have an advisor who can help you check this and make sure you’re really covered: it could be your broker or a lawyer or even your title company, if you have a very trusting relationship with has them.
Robert Mazzoni
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