This article will discuss the “hidden title defects” that can be found in a title insurance commitment. These hidden title defects pose a serious danger to you, as the selling Realtor®, because a buyer harmed by these defects can seek to sue you and your broker to recover the buyer’s losses from the defect.
A “title defect” is a lien, encumbrance, restriction, reservation, or encroachment on land, or a deficiency or imperfection in the land’s chain of title that makes the land unmarketable, un- saleable, or unable to be mortgaged. A true title defect is often unknown to the owner, and it can be difficult or time consuming to remove from the title. (Liens and encumbrances that are customarily removed in the course of a closing by payment of monies – such as the seller’s mortgage or a known judgment that will be paid off and satisfied at closing – are not true title defects.)
There are two ways to protect yourself from the lawsuits that can result from true, hidden title defects. The first protection is the best and the simplest – advise and, if possible, convince the buyer to have an attorney review the title insurance commitment to ensure that the buyer will receive, and have insurance for, good and marketable title to the property that the buyer is purchasing, free and clear of all “hidden title defects.”
We know, however, that many buyers will not want to pay for an attorney, and sometimes there is not enough time for an attorney to review the title commitment prior to closing. We are also aware that you may be reluctant to involve an attorney out of a concern that the attorney may simply scare buyers by exaggerating the impact of matters in the title commitment that, in a practical sense, are solvable or are not that serious, and are therefore not truly title defects.
If you or your buyer do not want to involve an attorney, this article describes your second best protection – a way to review and analyze a title commitment to find, if present, the most obvious “hidden title defects.” Bear in mind, however, this article cannot and will not give you a foolproof method to identify all title matters in a commitment that are detrimental to a buyer, since (1) time constraints will probably prevent you from reviewing the documents that are referenced in the commitment, (2) you will not have access to some of those documents, (3) you have not been trained to be a title examiner or attorney, and (4) you are not being paid to fully review and analyze the matters set forth in the commitment. You should therefore always advise your buyer not to rely on your review or to look to you for assurances on the status of the property’s
Again, the best way to protect yourself—and your buyer—is to advise and, if possible, convince your buyer to have an attorney review the commitment.