What Happens If a Title Defect is Discovered When a Property Is Already Under Contract?

By Marc Shaw

Putting in an offer on a home is one of the biggest financial moves you will ever make. While there are still some hurdles to overcome, formalizing your offer and having it be accepted by the seller will bring you one step closer to your dream of home ownership. But what if something comes up in the meantime that will prevent the property from being sold legally? Title defects can come up at any time, including the uncertain time between the day your offer is accepted and the day you close on the property. An unclear title will mean that you can’t close until the title defect is resolved.

So what do you do if this happens to you? The team at World Wide Land Transfer has some advice for buyers who have discovered a title defect once the property they want to buy is already under contract.

Potential Title Defects

While many types of title defects can be easily discovered during the title search process, others may not show up. These could include:

• Fraud or forgery in the title chain
• Improperly filed documents
• Seller impersonation
• Previously undiscovered heirs to the property, or previously unknown wills

Because these types of title defects can often be impossible to detect, a property could have been sold dozens of times without any issues. Unfortunately, if they are discovered while your future home is under contract, they will need to be resolved before the sale can go forward.

Resolving Previously Undiscovered Title Defects

When a title insurance company like World Wide Land Transfer discovers a title defect on any property, we immediately notify both the buyer and the seller. In some cases, a title defect will be relatively minor. For example, a missing notary seal can be easily resolved by amending the documents in question. A title defect like this will generally not be very expensive to resolve, and as the buyer, you may be able to negotiate with the seller to cover some or all of the cost so the sale can go forward.

Other title defects may not be so simple to resolve. If another party has a legal claim to the property because of a previously undiscovered will, it could cost thousands of dollars and take years to resolve the issue. You could try to negotiate with the seller to cover these costs, but it may not be the smartest move. Remember that the financial liabilities related to title defects belong to the current property owner, even if they are in the process of selling.

Luckily, even if the seller has already accepted your offer, you can still back out of the deal. Before you sign a contract and put earnest money in escrow for the sale, be sure the contract includes contingencies that will allow you to call off the deal if certain issues are found. A title defect is one of those issues.

Of course, even without a contingency, you can still back out of a real estate deal after your offer is accepted. It may cost you some money, but in cases where it will be very expensive to resolve a title defect, this may be the most prudent course of action. After all, there are plenty of homes for sale without expensive title defects, and you may be better off searching for a different property.

The Benefits of Owner’s Title Insurance

In the cases listed above, if the seller had purchased an owner’s title insurance policy, resolving title defects would have been much more clear-cut. They would simply have to contact their title insurance company and make a claim to resolve the issue, at which point the sale could go forward.

Now, imagine the shoe is on the other foot; imagine you have accepted an offer on a property you want to sell, and a title defect is discovered before closing day. Would you want to be caught without title insurance coverage in this situation? We imagine you would not. That’s why it’s important to speak with a title agent about getting the owner’s title coverage well before you close on your next property. You can also obtain a title insurance policy on any property you currently own. This policy will cover some or all of the expenses associated with resolving title defects that might be discovered in the future, protecting the investment you have made, and ensuring that any future sales can go forward without issue.

If you are searching for title insurance companies in Middletown, NY or anywhere else in the country, World Wide Land Transfer can help! Our experienced agents will be happy to tell you more about coverage options and escrow services for buyers, owners, sellers, and lenders.

World Wide Land Transfer is a service-oriented PA title company with offices in Philadelphia, New York, and Washington, D.C. With a record of going above and beyond, we are trusted to close everything from complex commercial transactions to residential refinance and purchase transactions.