Nothing turns the happy occasion of a real estate closing into a nightmare faster than an unresolved defect in the title to the property — or even worse, an unanticipated defect that shows up at the last minute.
"While the job of resolving title defects usually rests with the title company, an experienced real estate lawyer can help resolve problems with title as quickly and efficiently as possible," says Aurora Austriaco, president of the 1,500-member Illinois Real Estate Lawyers Association (IRELA).
"Most buyers don't really understand title commitments or loan documents," she states. "In most cases, only a lawyer can be counted on to point out issues that a buyer needs to be concerned about."
Austriaco, who is of counsel at Peck, Bloom, Austriaco & Mitchell, LLC, lists some of the most common issues affecting title than can be resolved beforehand through planning and communication.
* Judgments and liens. The seller must resolve existing judgments and liens prior to or at closing from the sale proceeds and obtain a release from any party being paid off. The release should be recorded immediately to clear these judgments and liens from the chain of title.
In the event a release cannot be obtained prior to or at closing, or the party owed cannot be located to receive the payoff, the title company can allow the closing to proceed by setting up a title indemnity account, usually for one and a half times the amount of the lien or judgment. In this way, the title company can issue a title policy free and clear of the exception.
* Dissolution of marriage. If a seller is in the process of divorcing, the title company will need to review the settlement agreement to determine whether the selling spouse has the authority to sell the property and whether part of the sales proceeds should go to the other spouse.
* Condominiums and townhouses. These types of properties are covered by previously recorded declarations and bylaws as well as covenants, conditions and restrictions of record. Generally, these documents contain provisions giving the condo or townhouse association the first right to purchase any unit being sold. In addition, since these documents are recorded very early on, the association's right to foreclose on any unpaid dues and assessments takes priority over any subsequent mortgages or liens.
Therefore, a title company will insure over the exceptions regarding assessments and right of first refusal as long as the seller provides it with a paid assessment letter stating that all dues and assessments are current, and a letter from the association waiving its right of first refusal to purchase the unit being sold.
* Setback line violations. Some properties have building setback lines that define where a building should be relative to the lot line. Houses built beyond the setback line are in violation of municipal codes.
Most title companies look into the nature of the violation, how long it has existed (violations become less of an insurance risk over time), whether neighboring houses are built the same way (making it problematic to remove violations), and its extent. Equipped with more information, a lawyer can negotiate more effectively with the title company for increased coverage on the client's title policy.
* Property line encroachments. Encroachments onto the subject property are not insurable since they become automatic claims to the title company by the insured. Encroachments from the subject property onto a neighbor's land, however, are insurable depending on the type of encroachment. A fence encroachment usually is not insurable since fences can easily be moved. In other cases, title companies determine insurability of the defect by looking into the type of encroachment, its duration, how movable or permanent it is, and the extent of the encroachment.
* Tax problems. If a property has been sold at a tax sale for an arrearage, an estimate of redemption must be obtained from the county clerk's office to redeem the property. If the estimate of redemption is not available at closing, the title company will generally require title indemnity for one and a half times the amount of the taxes sold.
* Bankruptcy. If the seller has filed for bankruptcy and the case is still open at the time of closing, the seller must provide the title company with a court order allowing the sale of the subject property. Absent this order, the closing may be a violation of the stay order on the disposition of the debtor's assets.
Most title defect issues can be resolved as long as you work with your real estate attorney, says John O'Brien, IRELA chairman. The key is to do so before it becomes too late to avoid the nightmares, he says.
The Illinois Real Estate Lawyers Association is a not-for-profit organization dedicated to providing quality real estate services to individuals and businesses. Headquartered at 2340 S. Arlington Heights Road, Suite 400, Arlington Heights, IL 60005, the association can be reached by phone at (847) 593-5100 or on-line at www.reallaw.org. |
