Quick Answer
A property with a title defect may still be sellable, but the defect typically must be cured, addressed, or accepted before the transaction can close and the title policy can be issued.
The short answer is yes, it may still be possible to sell a property with a title defect. But it depends heavily on the nature of the defect, the buyer's requirements, the lender's requirements, and the title insurer's willingness to insure around the issue.
Example
A property has an old, unreleased mortgage from a lender that went out of business twenty years ago. The seller paid off the loan but the release was never recorded. The property may still be sellable, but curative steps will be needed to address the unreleased mortgage before the title insurance can be issued.
What Determines Whether You Can Close?
The Nature of the Defect
Some defects are relatively straightforward to cure (a missing release, a corrective deed). Others may require extensive legal work (a quiet title action, a probate proceeding). The complexity directly affects whether and when the transaction can close.
The Buyer's Requirements
A cash buyer may be more flexible about certain title issues than a buyer using conventional financing. However, even cash buyers should carefully consider whether they want to accept title defects that could affect their ownership rights or resale ability. Learn whether title insurance matters for cash purchases.
The Lender's Requirements
Lenders typically require clean, insurable title. If the lender's title insurance policy cannot be issued because of a defect, the loan cannot close. The lender's underwriting standards also play a role.
The Title Insurer's Willingness to Insure
The title insurer may be willing to insure over certain defects with appropriate underwriting approval or may require specific curative steps. Some defects can be excepted from coverage if the parties agree. Learn about removing title exceptions.
Possible Solutions
- Cure the defect: Resolve the underlying issue through releases, corrective documents, or legal proceedings.
- Insure over the defect: With underwriting approval, the title insurer may agree to insure the transaction despite the defect.
- Except the defect from coverage: The buyer may accept the defect as an exception to title insurance coverage.
- Negotiate a resolution: The parties may agree to price adjustments, holdbacks, or other arrangements.
Can You Just Sell "As Is"?
Selling a property "as is" generally refers to physical condition, not title condition. Title defects are different from physical defects. In most transactions, the title must be insurable for the sale to proceed, regardless of the property's physical condition. However, in specialized circumstances such as some investor transactions, alternative title solutions may be available.
FAQs
Do I have to disclose a known title defect to a buyer?
Disclosure requirements vary by state. In general, a seller who knows about a title issue should discuss it with their real estate agent and attorney. The title examination process typically identifies recorded defects regardless.
Can a title defect be fixed after closing?
Some defects can be addressed after closing, but it is generally better and less expensive to address them before closing. Once the deed has transferred, getting the prior owner to cooperate becomes more difficult.