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Clear and Marketable Title - You Must Have Both

By Jeff Pearl

Real Estate Agent with RE/MAX Distinctive / LIC in VA

April 12, 2011 05:01 AM

Are you sure there are no clounds on the title? Sometimes, one title search may not be enough.

I sold 3 building lots in VA a while back. ( Same owner). All 3 lots sold, all 3 had title searches and title insurance, and I was glad to be done working in that area. Then I get the news. The buyer of one lot went to get his construction financing from a bank in Clarke county which did their own title search. Their title seach discovered the words " unborn heirs" in the will of a previous owner. This caused the title to become not marketable. It was considered clear since their was little chance some grand kid would read his grandparents will and notice that they are one of the unborn heirs and should have inherited that property. The buyers construction financing was held up until we could clear up the title issue. I had to hire 2 law firms to avoid a conflict of interest. One law firm to represent the live owners that were selling the lots, and another lawyer to represent the unborn heirs.

Yes, the judge required that the unborn heirs ( past and future) be represented in court even though they weren't born and weren't present now. We had to track down all the living unborn heirs and get them to sign a release that they had no ownership interest in the property. The ones that couldn't be found can't come back later and say they were suppose to inherit the land and were owners of the property, because now we can say that all previous, current, and future unborn heirs were represented in court by an attorney that approved the sale. $7000.00+ and several months after the sale, all lots have clear and marketable titles, and buyers have built their houses.

Not all Title companies are the same, and not all Title insurance companies are the same. Title insurance was useless in this case. In the 2005-06 rush, I know many compnies rushed the title searches and onlt went back a minimum amount of years. I would bet many title defects were overlooked or ignored during that time.

Funy how 2 little words can create such a huge mess. I do pre-listing title searches more often now, especially with all the short sales these days, just to identify clouds and defects sooner, and give myself more time to correct them if possible.

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David Burrows

Classic Realty - Fairfax, VA

No Pressure, Just Seriously Devoted to Real Estate

I agree with pre-listing title searches. Great post and thank you. - David

Apr 12, 2011 07:43 AM

Maria Smith

Windermere R/E Lake Tapps, Inc - Lake Tapps, WA

Great blog to explain the merits of title insurance.

Apr 12, 2011 08:24 AM

Sonia Dubois-VanNatter

Zdenek Law Firm, P.A. - Apex, NC

Oh wow. Since I work in a real estate law firm, your post gave me goosebumps. Every word needs to be read, re-read, and then read again for extra measure. Great post, though I am sorry you had to go through such a mess.

Apr 12, 2011 08:31 AM

Rosalie Evans

Meritus Group Real Estate - Sioux Falls, SD

The Evans Group, Sioux Falls, SD Homes For Sale

I have never seen title written out that way either! Thanks for the interesting read!

Apr 12, 2011 08:33 AM

Chris and Berna Sloan

Group 1 Real Estate - Tooele, UT

Tooele UT

Amazing! I'm now starting a new marketing program to all of my "unborn" clients...Delivery is a bit hazy! A great Title Company is a must these days!

Apr 12, 2011 08:35 AM

Donald Reich

Madison Specs - New Rochelle, NY

Cost Segregation Specialist

That is some story! I'm glad you guys were able to clear it up

Apr 12, 2011 09:17 AM

Jerry Morse

The Morse Company - Janesville, WI

BBA,GRI

As hard as we all try to be thorough and careful, something new always seems to happen!

Apr 12, 2011 09:25 AM

Yvonne Hurt

Long & Foster Real Estate - Reedville, VA

Northern Neck of VA Real Estate

Jeff, this is a very timely post. I have also been seeing title issues that were not picked up in previous sales a few years back. Fortunately, I haven't had to deal with anything like you have described. Thanks for sharing.

Apr 12, 2011 10:26 AM

Kwee Huset

Kwee Huset Realty - Venice, FL

Venice Florida Homes For Sale

Thanks for sharing, first time heard about "unborn heirs"

Apr 12, 2011 11:33 AM

Cory Barbee

San Diego, CA

Broker (760) 563-4022

Great post and great information...I'll use this info in my next training...thanks!!

Apr 12, 2011 12:04 PM

Sandra Ormerod

Sotheby's International Realty - Sonoma, CA

I'm gifting my not yet winning lottery tickets to my unborn heirs. Pre-listing title searches are must. Recently had a seller forget that his "silent" partner was still on title and not know where to find him.

Apr 12, 2011 02:57 PM

Joan Whitebook

BHG The Masiello Group - Nashua, NH

Consumer Focused Real Estate Services

I am not sure that we have access to pre-listing searches. I also have been told that clear AND marketable are not necessary...I am giong to have to query our legal hot line.

Apr 12, 2011 03:31 PM

Ellie Penaranda

239.776.5077 Downing-Frye Realty - Naples, FL

Naples Florida Real Estate - Waterfront & Beach Co

Jeff, I am dealing with a title company that recorded a sale years ago and forgot to identify the buyers as husband and wife on the deed... the husband passed away and the property went on the maket for sale with a contract that I have for my buyers. Because the sellers were not identified as busband and wife, they automatically become tenants in common, which means that probate judge might appoint someone other than those who already signed and accepted our buyer's offer. Quite a mess that could have been avoided. Great post and excellent advice.

Apr 12, 2011 04:56 PM

George Bennett

Inactive - Port Orford, OR

Inactive Principal Broker, GRI

Question - Why was the Title Insurance Policy useless?

It would seem that a pre-listing Title Search could miss this just as easily as a Title Search to ensure clear title prior to closing escrow. So the pre-listing Title Search doesn't solve this problem. A pre-listing Title Search could reveal problems in the public records earlier however, in our area they charge $200 for this service.

Questions - Do Title Insurance Companies charge a fee for this service in your area? Do you pay for it or is the fee charged to your client?

Apr 12, 2011 06:46 PM

Fernando Herboso - Associate Broker MD, & VA

Maxus Realty Group of Samson Properties - Clarksburg, MD

301-246-0001 Serving Maryland, DC and Northern VA

Wow, I did not know that an unborn heir had such a power on a title

Apr 13, 2011 12:24 AM

Mark McHugh

Clearmark Real Estate llc - Warwick, RI

Realtor Rhode Island 401-641-3842

Good stuff Jeff, very infortmative> I've had several unresolved blemishes on title here in New England lately. Thank goodness I have a good relationship with excellent title attorny's.

Have a good one.

Apr 13, 2011 01:12 AM

Richie Alan Naggar

people first...then business Ran Right Realty - Riverside, CA

agent & author

Good post...That is why I work closely with a good Real Estate attorney in all my deals...when something shows its ugly head, between the two of us it is covered and my principals are protected....thank you

Apr 13, 2011 05:09 AM

Jeff Pearl

RE/MAX Distinctive / LIC in VA - Lovettsville, VA

Full Service Full Time Realtor

1- Thanks Lanre

2- Thanks Sally, Yes, I think early and thorough title searches will be a must for quite a while.

3- Hi Clay, yes, it was. I only posted the short version of the scenraio. There was much more to it.

4-Larry, it was a first for me as well.

5- Hi K. C., Very true.

6- Hi Lisa and Robert, I've been told by more than one Title company that they are going back several more years now when doing title searches.I'm sure they are many title that slipped through with defects.

7-Hi Christianne, It did sound ridiculous at first, but made sense as the process went forward. Every time a kid int he family was born, legally they could claim an interest in the property because they were an unborn heir and no one asked them if they wanted to sell their interest.

10- Hi Sonia- Yes, by just overlooking or ignoring 2 little words, huge problems can arise. It could have been worse if the buyer built the house to sell, then found out he couldn't sell it because the title wasn't marketable. Apparently you can have a clear title that isn't a marketable title. Not good.

9-Hi Maria, Yes, I think I will do some more research to see what title insurance really covers. I think some companies use to offer a basic policy and a full coverage policy. I've had people tell me that they don't think they need title insurance.

8-Hi David, Yes, I'll be asking sellers more often now about getting them done early.

11-Rosalie- The problem originated from the Will. I guess it was suppose to be a method to keep the property in the family?

12-Hi Chris- It was a process I hope to avoid from now on.

13-Hi Donald- Thanks.

14- Hi Jerry- Yes, this was a new one.

15-Hi Yvonne, I will definatley look more closely at title insurnce, binders, etc.

16-Hi Kwee, It makes more sense it you think of a situation like in England where an unborn heis is suppose to inherit the throne, but before he was born, the king dies, and someone else gets assigned to the throne without reading the kings will thoroughly. Then when the kid is old enough, he figures out that he was suppose to inherit that throne, so he could take legal action to get that throne because the process of assigning the current king wasn't done correctly.

17-Hi Cory, Thanks.

18-Hi Sandra, Sounds like you have some title problems coming up to deal with. Good Luck.

19- Hi Joan, Maybe laws are different state by state, but I've never heard of selling these days without a title search and clear title.

20-Hi Ellie, Wow, you have quite a mess to deal with yourself. Hope you get it cleared up.

21-Hi George, I'll have to go look through a thick file from the attorneys office, but I think they claimed it wasn't their responibility to discover this, and they assumed the title insurance would correct it if need be. Well, Title insurance company didn't agree. I think they mentioned something along the lines that it was the owners responibilty to disclose the unborn heirs. Owners figured that was what the title search was for. Title companies charge for insurance. I can get a title company to do a search up front which is common these days with short sales. There is no charge if they handle the closing, but if buyer wants to use another company, then I have to pay $150.00. Sometimes the sellers will offer to pay the $150.00.

24- Hi Fernando, Yes, they can cause quite a mess. And the more that are born, the worse it can get.

25-Hi Mark, Thanks. Good for you, that's a good relationship to have in place.

Apr 13, 2011 05:22 AM

Bill Rozek

Embrace Home Loans, Inc. - Potomac, MD

NMLS #214260

Interesting post. Maybe a title attorney can chime in here, but is this something that the expanded or deluxe title insurance would have covered, when regular owner's coverage did not?

Apr 13, 2011 06:19 AM

Jeff Pearl

RE/MAX Distinctive / LIC in VA - Lovettsville, VA

Full Service Full Time Realtor

Hi Bill, We did have the deluxe title insurance from a major company on the first lot that we sold. On another lot, the buyer got title insurance through the lender he used, but that lender and title company went bankrupt. I don't remember what he did after that, but we had the final court approval for everything soon after that, and he was able to proceed with building without any title problem.

Apr 13, 2011 11:16 AM

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