In real estate transactions, the seller must provide the buyer with a marketable title.
Owning a home is the dream of many individuals. However, this can be complex, confusing, and take longer than expected. Therefore, if you want to successfully navigate all of these processes, you should first contact our New Jersey real estate attorney.
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Definition of a marketable title in Real Estate
A marketable title in real estate is when a seller transfers title to the property free of defects to the buyer.
For this to be done, an Equity court must find the title to be free of claims or defects. If it is, it will enforce the buyer’s obligation to acquire said title.
- Although, in the definition of a clean transfer of the title, it does not necessarily mean that it is free of flaws, it must be devoid of serious flaws. Thus, this allows the buyer to accept the title as is.
- In most agreements for the sale of a property, they contain a clause that requires the seller to make a clear transfer of title to the buyer.
- In essence, all of this means that the title to the property is clear of liens. If there is a lien on the property, it makes the title no longer transferable.
- One of the most common liens is the preventive lien. For example, if a tenant has not paid rent for months, the landlord could request a lien on the rent.
In the event that the tenant is ordered to pay the outstanding rents, the plaintiff could sell the property through an auction. If the embargo is carried out, then the owner will be able to supply the amount of the unpaid rents.
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Potential Issues That May Prevent A Marketable Title in Real estate
Some possible problems that could arise in the property title and prevent a marketable title, are:
- The owner verbally tells another individual that they can stay in the house.
- The death of an individual without a will.
- Divorce of a couple and one of the spouses remains in the house.
- The transaction is not recorded with the county clerk.
- An individual receives an invalid deed.
- A couple separated but never officially completed their divorce.
- An individual inherits a house and then gets married.
- An individual has a quitclaim deed in New Jersey.
What Makes A Marketable title In Real Estate Possible?
According to the law, the property title must be free from reasonable doubt or any type of threat of litigation to make a marketable title.
- When a marketable title can be made, it will indicate that the chain of title to the property is clear and flawless. However, title insurance may be helpful in these cases.
- Through title insurance, companies that offer title insurance in New Jersey agree to offer coverage against these failures.
- These coverages are designed so that the faults found do not impair the value of the property or the property itself. In addition, insurable titles do not have the guarantees of marketable titles.
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Title Insurance Vs. Marketable Title In Real Estate
There are certain differences between a marketable title and title insurance. Among these differences are:
Clean Transfer Of Title
It means that the title to the property is clear and free of defects. Therefore, the property can be sold without additional effort to clear the title.
- To transfer a title, the seller must correct or repair any type of defect found during a property title search in NJ. An example is liquidating liens.
- This is a pretty strict standard, but buyers shouldn’t have a perfect product. Because human error is possible, there may be minor typographical errors, surface defects and others.
In conclusion, a seller could make a clean transfer of title if there is no evidence or doubt about your ownership and that there are no “title irregularities” or liens that will not be settled at the closing of the transaction.
It means the title to the property may have known defects, but the title insurance company provides insurance against the defects. These defects could affect the property or its value.
- At the time of title transfer, the seller is not obligated to correct or repair the defects in the title. However, the insurance company must be willing to insure the defects.
- Likewise, the insurable title requires a less rigid standard than in the clean transfer of title. Thus, insurable title may contain title irregularities or defects that would otherwise make it unsellable.
- The title insurer must be informed of all defects and agree to offer title insurance that covers the buyer.
In short, there may be known issues affecting the title to the property, but the title insurer will protect the buyer from damages or losses up to the limits of the insurance. Typically, cumenal defects from this include:
- Mortgages on previous properties that were not paid.
- Questionable access easements.
- Unresolved liens against previous owners.
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What Are clouds In The Clear Transfer Of Title In Real Estate?
A cloud on title is a lien or claim that affects the property and can potentially discourage prospective buyers from buying it. Generally, property title clouds can occur as a result of:
- Easements or mortgages on the property.
- A defect in the property deed in New Jersey.
- A lien.
Often these claims can be discovered through a title search. A common example is that a title search may uncover a lien from the provider.
These liens are generally placed on the property when there is a problem related to the payment of a construction. Because this lien remains with the property, a cloud (irregularity) is created on the title.
Examples Of Clouds on Property titles
A cloud on property title can take many forms. However, the most frequent are:
- Lien on title: An individual other than the owner claims a legal interest in the property.
- Defective title: There is a current or past problem with the home that makes title to the property unclear.
More Frequent Liens That Can Create A Cloud on title
Next, we will show you some of the most frequent liens in the title of property:
- From HOAs: The homeowners association (HOA) also places liens on properties that have not paid their dues or those that violate HOA rules.
- Judicial: This occurs when the property owner loses a lawsuit. These liens help ensure that the responsible party pays the judgment. Most lawsuits can result in judgment liens, so they don’t have to be related to the home.
- Easements: A legal agreement that grants an individual or entity legal permission to access and use the property of another individual for a specific purpose.
- Mortgage: Late or missed mortgage payments can lead to a foreclosure or foreclosure. To remove this lien, the debt must be paid off or other arrangements made with the lender.
- Tax Lien: Unpaid property taxes can lead to a tax lien. These may be represented by government agencies, such as the Internal Revenue Service (IRS).
- From vendor/contractor: If the contractor or another worker cannot be paid for work performed, the worker may place a lien against the property.
- Due to property disputes: If the owner of the property dies and does not leave a will, your children may not agree on who would inherit the property. This disagreement would create a title irregularity on the title.
What Consequences Does A Cloud on title Have On The Marketable Title In Real Estate?
Titles that have a title irregularity make it difficult selling a house in New Jersey. On top of that, this can lead to big problems for a homebuyer if it’s not discovered well before closing day. Among these problems we find:
- For Buyers: Buyers need to be careful about finding a cloud on title, as a cloudy title can make it more difficult to buy a New Jersey home.
- For sellers: A cloud on title could decrease the value of the property, thus making it more difficult to sell. Most buyers will not buy a property with these title issues. Therefore, the sale may have to be delayed while the liens are paid.
When you sell or buy a home, you must pay closing costs on a New Jersey home. Check our corresponding blog where we explain all this topic.
How To Remove A Cloud on title?
Defective titles can be a big problem, but this doesn’t have to be the end of a clean title transfer. To do this, one of the following methods must be followed:
- Pay the debts.
- Settlement deeds.
- Request an action to mute the title.
Another method is to simply contact us. At Curbelo Law, we have one of the most experienced real estate attorneys in all of New Jersey.
How To Avoid Clouds on title For A Clean Transfer?
A property owner may be able to avoid potential property title irregularities by following these recommendations:
Resolve Title Issues Quickly
A cloud on title can result in very costly unexpected expenses. Therefore, it should be advised to resolve title issues as quickly as possible, ensuring that the property can be sold without a hitch.
If you are buying a property, you should make sure you get a title search and resolve any title defects before completing the real estate transaction.
The vast majority of liens can be avoided by keeping up with all payments made, especially mortgage payments. In addition, when handling transfers or easements, it must be verified that all the documentation is detailed and correct.
- In the case of hiring a contractor to work on the property, it is advisable to verify and understand the terms of the contract.
- Likewise, it is crucial to take steps to protect yourself. For example, instead of paying the contractor in advance, you can pay for the work in stages.
- For these situations, it is advisable to have our lawyer to help you resolve any complex issue.
Avoid Buying A Property With A Cloud on Title
Through a title search you can avoid buying a property with a questionable title. The title company conducts a search to ensure that the seller has the right to transfer ownership.
These title searches involve conducting various investigations, including county property records, court records, and deeds.
Mortgage title insurance is often provided by title companies to help and protect the owner.
In our blog, we have several publications focused on explaining various topics and situations related to the types of mortgage loans. Among these topics are:
- Mortgage requirements in NJ.
- Self-employed mortgage loans .
- What not to do when applying for a mortgage.
- What happens if I lose my job before closing on a mortgage.
Real Estate Law firm Experienced in Marketable Titles
Although it is unlikely that individuals will have title issues with their future home, an attorney experienced in these matters should always be consulted.
- Thanks to our attorney Carolina T. Curbelo, individuals will be able to ensure that their financial situation or that of their family is not devastated in case problems arise.
- In real estate transactions, a buyer can find themselves in the worst possible parts if they run into problems when it comes to buying their new home.
- Therefore, our attorney will be able to guide you through the home buying and selling process.
- In addition, he also has extensive experience in other real estate matters, so he can represent you in all types of real estate situations.
Call us today, send us an E-mail or schedule an appointment with the office, located in Ridgewood, New Jersey.