Title Issues in Private Transactions: When the Past Comes Knocking
Real estate transactions are fraught with potential issues. At any point in a transaction, financial problems, documentation issues, or legal problems can put the transaction on hold or even terminate a contract. Unfortunately, the issue is even more prominent in private real estate transactions. These private sale contracts often take place between friends, family members, or close neighbors.
When people trust the person they’re doing business with, they’re more likely to gloss over checks and balances that protect them from later issues. It’s easier to skip your due diligence when you’re purchasing property from someone close to you. Learn more about how title issues can pop up in the years after a private transaction and how you can protect yourself and your home.
Unpaid Liens and Encumbrances
One of the most common challenges in real estate transactions is the presence of unpaid liens and title encumbrances. Property may have liens placed on it when the owner has unpaid debts or fails to pay contractors for the work they do on the. property. These liens can place a cloud on the title, potentially invalidating it. Furthermore, the presence of a lien can prevent you from selling the property or borrowing against it in the future. It’s crucial that the property seller clear all outstanding liens before completing the sale.
Document Validity Issues
Unfortunately, a number of buyers have run into issues with document validity. The chain of title is the transfer of the title from owner to owner, going all the way back to the original owner of the property. When there are forged or fraudulent documents at any point along this chain, it can affect every transaction after it. In fact, the discovery of forged or fraudulent documents can even throw ownership of the property into question. It’s very difficult for a layperson to ascertain the validity of real estate documents, which is another reason you may consider hiring a real estate attorney to assist you in a private sale.
Boundary Issues
Boundary issues are the most common source of problems between neighbors. There’s a reason that people say, “Good fences make good neighbors.” When boundaries are clearly defined and respected, you can enjoy a more friendly relationship with your neighbors.
When historical boundary problems are not disclosed during a sale, the new owner may be left to address them. This is particularly tricky when you think about adverse possession—if the new owner doesn’t realize immediately that part of their property is being used by someone else, they risk losing ownership of it entirely.
Unclear property boundaries may cause ongoing problems between neighbors who both believe it belongs to them. These problems are generally fairly easy to solve with surveys and boundary determinations—but when problems are left to linger for years or decades, they become increasingly complicated.
The Role of Title Insurance
Title insurance is highly recommended in all real estate transactions. While lenders are generally required to carry title insurance, owners only have to buy title insurance if they choose to buy it. This simple purchase can save you from significant stress and expense if title issues come up. Title insurance provides buyers with peace of mind, and if problems arise, the insurance company covers legal expenses and potential financial losses. Unpaid liens, fraudulent or forged documents, and other issues are generally covered by title insurance.
Protecting Yourself During Private Transactions
No matter how much you trust the person from whom you’re buying property, you must protect yourself from future issues by doing your due diligence. You can also invest in services and products that can save you future heartache. For example, consider an inspection and title insurance. Unfortunately, people in private transactions are often looking to save money, which means that these purchases might not be a high priority. But if they save you stress and the cost of your real estate investment down the line, they will be more than worth it.
You may also want to retain a real estate attorney to help you navigate your private transaction. Again, while this may be an additional investment, real estate is likely one of the largest purchases you’ll make in your life. Ensuring that your purchase goes smoothly is very important.
