ForeclosuresMass - ForeclosuresMass Monthly - Feature Article - Keep Your Title Clean: Three Strategies for Preventing Title Problems (February 2008)

A real estate Title Abstract (sometimes referred to as a "Title search") is simply a compilation of documents, recorded at the Registry of Deeds for your county. A Title search establishes ownership of a property by a "Deed" or other legal process, such as the property being granted by a Will, and the encumbrances on that property, such as a "Mortgage."

Nothing can bring a deal to a crashing halt faster than unresolved problems regarding Title. Some of the most common Title problems a lawyer deals with include: undischarged mortgages, last minute liens placed on the property, and owners who transfer their property on their own without understanding the laws and rules of the Title standards and their implications. Let's look at these issues in detail.

When you pay your mortgage loan in full, you (or your closing attorney) normally receive a document from the bank that states the loan has been paid and that the bank no longer has a lien on the property. This "discharge" is recorded at the County Registry of Deeds.

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When real estate attorneys examine a Title Abstract, they look for mortgages that have not been discharged - normally, an indication that the seller is currently paying on a loan. In some cases, however, an attorney may discover that a property has two or three mortgages outstanding on it, and when the seller is told this information, the response may be, "What?! I don't have three mortgages!"

Undischarged mortgages are usually the result of banks failing to complete their paperwork or the bank sending the documentation directly to the debtor who does not know to record the discharge at the Registry of Deeds. Normally, you or the closing attorney should be able to call the bank and get the discharge document, but due to bank mergers and closings, this is not as easy as it sounds - especially if the outstanding mortgage is from a prior owner and not the current owner.

Let's say the owner of a property from 20 years ago paid off the mortgage to ABC Bank and ABC Bank did not record the discharge with the County. The property is then transferred three or four times - and either due to an error in the Title abstract or simply because a real estate attorney or abstractor didn't do a thorough Title search, the undischarged mortgage wasn't found.

Now the present owner goes to sell - and the current attorney finds the undischarged mortgage. Unfortunately, even though the present owner is not the one who took out the loan 20 years ago, he or she is still responsible for providing a clean Title to the new buyer.

This could mean hours of frustrating calls, paperwork and additional legal fees. Why? Because ABC Bank is no longer in business and XYZ Bank, who bought ABC Bank, probably doesn't have those archived records. In fact, just trying to find someone within the bank to help you can take multiple phone calls, faxes and letters.

If you're faced with clearing the Title of a "paid outstanding mortgage" from a prior owner, it really pays to have your closing attorney, who is experienced in Title issues, take care of this daunting task. Your attorney can cut through the red tape and often knows - from trial and error - the bank departments to call and how to get a hold of records that may no longer exist.

One little known issue that can arise involves contractors or other persons placing liens on a property the day before or at any time between when the Title Abstract was last updated and before the new transaction goes to record.

Recently, I was the closing attorney for a client who was purchasing a new construction home (a cash transaction). At the closing, which took place at the Registry of Deeds, we signed all the paperwork, and I left the table - explaining to the seller's attorney and the buyer's that I would be back in a few minutes after I updated Title and recorded the Deed. I would then disburse the money.

When I searched the seller's name, however, I discovered that a subcontractor framer had placed a $23K ex-parte mechanic's lien on the property the day before - with the seller having no knowledge of this action! I got copies of the lien and then went back to the table to explain what I had found. We were able to resolve it without alarming the buyers and to the satisfaction of the seller.

However, if I had disbursed the funds before checking the records, the buyers would have had a Title issue, the seller could have been facing an additional law suit, the real estate agent probably would have been a party to a legal action, and I would have had a great deal of explaining to my client as to why I put them in this position.

To prevent Title problems like this, insist that your real estate transactions be recorded before funds are disbursed. Yes, it can sometimes be inconvenient to the real estate agent, seller or buyer, but it is far more inconvenient to be a party to a law suit.

Title is powerful thing and something you should carefully protect. Yet, I often see people making changes to their Title without any knowledge of the long term effects of those changes.

For example, people will transfer the Deed of their property to family members and then transfer it back, or they'll put their home into a trust. This may be fine, but by not following the proper laws and rules, they unknowingly develop Title problems.

Recently I examined a Title abstract to conduct a closing for a client selling property in New Hampshire. Upon searching, I found that 35 years ago there were five deeds for the same property, signed by a total of 38 people - some of them being spouses saying it wasn't their homestead property to the same grantee (buyer).

The problem, however, wasn't in the number of Deeds. The problem was that none of these grantors were the Title owners of the property. The property had been deeded to a man who had died 37 years ago. A search of the probate records revealed that probate was never opened for his estate and the original attorney who drew up the Deeds had also died and his records were long ago destroyed. There was no way to know if the original owner had a Will or not and no reason was cited on the Deeds to indicate why the property had been transferred in this manner.

The Deeds, therefore, were invalid to that particular grantee because there was no indication that the grantors had the authority to deed anything.

Unfortunately for my client, this left him with a serious Chain of Title problem because he couldn't provide a free and clear Title to the buyer who wanted to sub-divide the land.

On top of that, in order to clear Title, my client would need to bring an equity action in court for a "Petition to Quiet Title." This is a legal process that can cost a considerable amount of money.

You can only imagine what this gentleman was going through - he had a mortgage, he had a Deed, he had refinanced several times, and no one had ever pointed this problem out to him before. In fact, the property had been transferred a couple times to each new owner with nothing ever being said. Now he was faced with a legal action and he had already purchased his new home.

Thankfully, this story had a happy ending. I asked my client if he had purchased the optional owner's Title policy (Title insurance) when he bought the property. He went back to his original paperwork and sure enough, he had purchased a policy - which at the time cost him approximately $800. We contacted the Title insurance company who opened the claim and undertook clearing up Title - at no cost to my client.

To prevent or clear Title problems, ensure you use a real estate attorney experienced in complex Title issues and seriously consider purchasing the Owner's Title insurance policy. By purchasing the policy at the same time you take on a mortgage, you pay a lower rate and it's effective for as long as you own the property, whether or not you refinance or change marital status.

Once you own a property, keep track of all your closing records and documents and do not make changes to your Deed unless you have spoken with an attorney who can advise you of the legal ramifications of doing so and help you prepare the required documentation. These Title "best practices" will ensure you remain clear of Title problems in the future.

A real estate attorney specializing in Real Estate Law, Conveyancing, Title Opinions and repairing Title issues, Jacqueline Fitzgerald-Boyd is the Principal of Maplewood Title, Inc. and is licensed to practice law in both Massachusetts and New Hampshire. She can be reached by phone at 603-612-0333 x 301 or by email at maplewoodTitle@aol.com.