Liens on Title
When closing purchase transactions we frequently encounter liens against the seller or seller's property. The general rule is that anything that could create a cloud on the title to be transferred to the buyer must be resolved at or before closing. Either we collect for and payoff the lien at closing or we require adequate proof of payoff and settlement such as by the recording of a release Title companies are in the business of insurance. When we close a transaction and issue a title policy to the new owner, we are insuring that there is nothing superior to their interest in the property, and must be certain of this fact before policy is issued.
Those of you familiar with a title commitment know these items needing to be resolved can be found in Schedule B of the commitment. Some title companies will use just a Schedule B listing all items that are exceptions to title, while others will provide a Schedule B1 – containing a list of requirements to be met before closing, and a Schedule B2 – listing all items that are exceptions to title. The most common example would be the seller’s mortgage, taken out when they originally purchased the property, which must be paid off at closing so that buyer receives clear title, and buyer’s lender has first priority.
Occassionally we find a lien or other title defect that can’t be resolved before or at closing. One example would be a mechanics lien where the seller and workman dispute the quality of the work or amount of the bill. A variety of things could happen, the least desirable of which would be delaying the closing until the issue is resolved. At Benchmark Title we pride ourselves on being deal makers, not deal breakers, and work hard to find a way to satisfy Buyer, Seller, Lienholder, New Lender, and our underwriters to get matters resolved so the closing can happen as scheduled.
Depending on the circumstances, we may hold a portion of the proceeds in escrow rather than pay the full proceeds to the seller. We would then ask the parties to sign an escrow agreement instructing us to hold the money until the matter is resolved, and to use the proceeds to payoff the lien if it becomes necessary. We also ask that the seller sign a personal undertaking holding us harmless for the matter to be resolved, and agreeing to defend us should a lawsuit arise as a result of the unresolved lien. This is required by our underwriters in order that we may issue a title policy to the buyer removing the item to be resolved, insuring clear title.
The important thing to remember is that these matter are sometimes difficult to resolve, and may require additional time to work out the details. If you are aware of a potential title defect that could delay closing, please let the title company know as soon as possible so we have ample time to work on a resolution to the satisfaction of all parties involved.
Any questions can be directed to Benchmark Title at 618-239-3750. Please feel free to call or email:
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