Most people don’t know that there can be any number of problems with the title to a property until they have to deal with a “defective” or “impaired” title as they try to purchase a new home. Sometimes, the sellers don’t even realize they have a defective title until they decide to put their home on the market.
A defective title is typically one that has some kind of “encumbrance” on it. The home can’t be sold or even transferred to another owner until that encumbrance is cleared and removed.
What can make a title defective?
Common encumbrances on titles include liens and judgments. Any time another party not listed on the title has a partial claim to the property, that’s considered an encumbrance.
Titles can also be considered defective if there are inconsistencies in the information on the title, such as, for example, if one of the owners listed on the title didn’t sign it, or if the paperwork around the original title wasn’t filed correctly.
Anyone seeking to sell a home with a defective title needs to have that title “remedied.” If there’s an encumbrance – for example, if someone placed a lien on their home because the owner owed them money or lost a civil lawsuit – that needs to be paid or otherwise settled so that the lien or other encumbrance is removed.
What if someone tries to sell a home with a defective title?
Anyone who does that can face serious consequences. They may have to pay damages to a prospective buyer, for example, if the sale was already pretty far down the line.
A seller with a defective title should certainly have legal guidance to help remedy the defect. However, if you’re a buyer who has encountered a defective title on your prospective new home, it’s also wise to determine what your rights are and protect your interests and any financial investment you’ve made so far in the purchase.