There are many processes that new home buyers need to go through in order to properly transfer the property from the previous owners to themselves. Where some homeowners find themselves running into problems during the title underwriting process. A delay or underwriting issues could put a block on forward progress toward completing the home sale, or it could kill the sale entirely.
Here’s what you need to know about the most common underwriting issues that occur during title underwriting process, as well as how you can avoid or remediate them.
What Is Title Underwriting?
Title underwriting is an investigative procedure that aims to uncover any potential problems with the existing title of a property. Any defects in a title, from data entry accidents to intentional forgery and more, can result in problems during a sale. In the worst cases, the seller may not actually have the authority to sell the property, which means that you as the buyer do not have the authority to buy it and become the new owner.
Underwriting for titles is a critical part of the home buying journey. However, you should be prepared for potential issues and understand how to resolve them before you fully commit to a home purchase.
Most Common Title Underwriting Issues and How to Avoid Them
There is a wide range of potential problems that title underwriting can uncover about the history of a home. Some are highly problematic and could threaten your ownership or use of the house, while others may simply be a minor inconvenience.
Still others can be directly resolved before the home purchase is complete thanks to the help of a competent title company. Here’s what you need to know so that you can prepare.
One of the most common title underwriting issues that buyers see is the appearance of previously undisclosed liens. A lien is a judgment against a property for a debt owed by that property owner. It usually happens due to not paying property taxes, but other sources can place liens on a home too. No matter where the lien came from, it is attached to the property, not the owner.
This means that if you purchase the property, you assume responsibility for the property and must pay off the lien. Whether or not you were the original cause of the lien is irrelevant. Skilled title companies can fight to contest liens on a property and have them removed.
An easement is a type of agreement that allows certain other parties to use the property for a specific purpose. Most easements do not pose a problem; one example of this is that the electric company has a right to use your property to install power lines.
However, it is important to stay abreast of easements, because they may force you to allow others, such as your neighbors, to use certain parts of your property, usually a driveway. Whether or not the easements are problematic will come down to your unique situation. Title companies can sometimes help you remove easements from a title.
Chain of Ownership Issues
Another common underwriting issue encountered during title underwriting is the discovery of undisclosed heirs. One of the most critical elements that underwriters will check is the chain of ownership for the property.
This refers to the documentation of who has owned the property over time and how it was transferred from person to person. In some situations, this transfer may have come with problems that can continue to manifest years later.
One example is that of inheritance and heirs, and if the property you are trying to purchase was owned by a family who included it in a will. The will may have stated that the property was to be transferred to an heir, but when the will was carried out, nobody could locate that heir. Eventually, the property would have been available for public sale.
Even if you purchase the property, the formerly undisclosed heir could appear and make a claim for ownership. If successful, any equity you put into the home would be lost, and you may even lose the right to occupy the home itself. Title underwriters will carefully comb the document history to uncover these, and other, potential problems.
Trust the Professionals to Help You Secure Title Insurance to Protect Your New Home
Title underwriting can speak volumes about what has happened to a property in the past and attempts to determine any issues. It is important to purchase a title insurance policy to secure yourself against issues that are not uncovered during underwriting.