Purchasing real estate in California requires a careful review of the property’s title history to avoid a variety of potential problems. Mortgage lenders usually require title insurance to finance a purchase. Title insurance companies will conduct their own review of the title history, but they do so to protect their own interests, rather than the buyer’s. The title insurer will notify the lender and purchaser of known or potential title defects that they will not cover, meaning that the purchaser could still be liable for some problems. It is in the best interest of every California real estate investor to research and investigate the property’s history. The following is a list of a few issues that might appear in a property’s title history.
Errors and Omissions
Clerical and filing errors can have serious repercussions for real property. A deed that incorrectly identifies the boundaries of a property, such as by leaving some portion of the property out of the legal description, can result in the loss of ownership of that part of the property. Other common errors include misspelled names of grantors or grantees, omission of legally required language in a deed, and misfiling of records.
Unknown or Missing Heirs
The general rule in the U.S., based on English common law, is that a grant of land is intended to be in perpetuity unless a deed specifies otherwise. The language used often states that the property is granted to the grantee “and their heirs.” If a previous owner of real property died, and the executor of their estate failed to locate or notify all of the owner’s heirs, those heirs could have a valid claim to some or all of the property, even years later.
A lien is a particular type of encumbrance that a person can place on real or personal property in order to secure a debt. Once an agreement establishing a lien is signed by a property owner, the lienholder has a legal claim to the property and can effectively prevent the property’s sale or transfer. Mortgage lenders have liens to secure the mortgage loan. Contractors can file mechanic’s liens or construction liens to secure payment for services performed on the property. Local tax jurisdictions can place liens for unpaid property taxes.
It is not always necessary to file a lien in the public record for the lien to be effective, and this can cause problems for a purchaser. The lienholder can still enforce the encumbrance on the property, and in some situations, they might be able to foreclose.
Unknown Encumbrances, Easements, Etc.
A property might be subject to other encumbrances that are not immediately apparent from the public record. An easement, for example, is a nonpossessory interest in real estate that allows the use of part of a property for a specific purpose. Many cities, for example, maintain utility easements that allow them to access a portion of private property to maintain power, telephone, and sewer lines.
Property owners may grant easements and other limited rights to other people, which could still be valid even after the sale of the property. A property owner might convey a limited interest to someone that does not appear in a search of the property’s legal description, such as a right-of-way to cross the property or an easement to use the property for recreation.
Forged Documents and Other Fraud
A real estate document that might appear valid on its face could turn out to be fraudulent. This might involve, for example, a forged signature on a deed conveying the property. This type of defect can be very hard to identify in advance.
More Blog Posts:
A Quick Guide to Title Insurance for California Real Estate Investors, Titles and Deeds, May 31, 2018
When San Diego Real Estate Investments and Land Use Regulations Collide, Titles and Deeds, April 20, 2018
What is Necessary for a Title Review for a Commercial Real Estate Transaction? Titles and Deeds, January 7, 2018