Today 24 hours prior to closing a transaction I find out that there is a cloud on the title. It is pretty simple. Sometime in 1964 someone somehow failed to get the proper documents filed in order to release a deed of trust in the amount of $16,000. The loan had been assumed a few times and during this same time this area was annexed from the county to the city so have the title work was recorded in the county and the other half was recorded in the city.
I was kinda surprised about the cloud since the property had been re-financed a couple times in the past two years. Wonder who did that title search? Obviously it was over looked.
Well more research reveals that the lender is no longer in business so there is no way to pay the debt if it was not paid. If I was a betting gal I'd bet it was paid and someone just screwed up along the way and during the time the neighborhood was annexed papers got shuffled and lost. Not surprising really now that I know more about the situation.
So how do we clear this problem up? Does the seller have to pay the $16,000 even though it really was not their debt? Does the buyer? The purchase agreement requires that the seller provide a clean title to the buyer. Well, luckily we have a solution called title insurance. The title insurance will insure over the cloud and insure (guarantee) a clear title for the lender.
It cost a little extra but since I represent the buyer I recommended the buyers get owners title insurance to insure over the title of their equity. Which in this case about half the value of the home. This is a one time fee but the insurance last until the end of time. Meaning even after you no longer own the property and are with your maker. It even insures your heirs from any liability.
Clouds on title is not that uncommon. I've run into it many times. People are human and mistakes are made. That is why we do title searches and that is why we have title insurance to cover our human mistakes.
I was a little upset that I did not find out about this until 24 hours prior to closing. Okay, I was a lot upset. The attorney tried to tell me that we could not close on time and bla bla bla. Well I had to put a little fire under his you-know-what and we are going to close tomorrow at 4 p.m.