As you read through the Real Estate Articles on our site, you will discover a few articles that address the importance of obtaining a title search and subsequently purchasing title insurance prior to closing a real property transaction. This is the case whether the property is being purchased with cash or financed through a financial institution. Having a title search performed is a necessary part of the closing process, and it should not be regarded otherwise. We encourage buyers to include the cost in their budget and expect it to be a line item on their Closing Disclosure, ALTA Statement, or in some cases, HUD.
Buyers are encouraged to consider a title search because, by design, the purpose of a title search is to reveal any issues that may raise a red flag and signal to the buyer that this may not be the property in which to invest their time and money. This may very well be the one to say goodbye to and walk away, or it may be the one to embrace and become excited about purchasing. The information that a title search reveals is invaluable, and it may save the buyer heartache and frustration in the future. In addition, it may also provide the seller with information that was unknown to them thereby affording the seller the opportunity to fix the problem and sell the property free and clear of any issues.
Yes, there are many issues that may be discovered in a title search. A very specific, recurring title issue is the discovery of Judgment Liens. A judgment lien attaches to real property when an individual or an entity files a law suit against a defending party for some monetary value and wins in a court of law.
How does this work? Once adjudicated as “the winner,” the judge will sign an order, and the prevailing party will record the order in the County’s Clerk of Courts Office where the case was heard. If the “losing party” owns real property in that county, the judgment lien immediately attaches to the real property. As a result, the real property becomes encumbered and can no longer be freely conveyed to another or refinanced by the “losing party” without satisfaction of the lien – meaning the judgment lien must be paid off. Further, the prevailing party can cause a copy of the order to be recorded in other counties as well. If an order is recorded in another county where the losing party owns property, the lien may attach to that property as well.
It is important to note that if the property is transferred, sold, refinanced, gifted, or otherwise conveyed without the lien being satisfied, the judgment remains with the property. To be clear, judgments are against a person, but liens are not. They attach to all property owned by the person at the time of the judgment and even property later acquired by the losing party.
Judgment liens attach for 10 years and can be extended an additional 10 years. This is why obtaining a title search is very important. Without a title search, the recipient of the real property may have been granted property with hundreds, even thousands, of dollars in liens attached. I wish I could say I was exaggerating, but unfortunately, I am not.
Additionally, a title search may reveal judgment liens against both the seller (current owner) and buyer (future owner).
For a seller, the judgment lien immediately attaches to the real property once an order is recorded in the county where the real property is located.
For a buyer, a judgment against them will become a lien and will immediately attach to the real property once the deed (general warranty deed, special warranty deed or quit claim deed) is recorded in the county where the property is located. If the Buyer wants to sell or refinance the property within the 10 (or 20) year time frame that the judgment may attach, the buyer will have to pay off the lien in order to convey good title.
For the reasons discussed above, title insurance companies as well as mortgage companies may require the buyer to pay off all outstanding judgments prior to or at closing.
On the other hand, it has been my experience that sellers are required to pay their judgments. Sellers are generally not given an option whether or not to pay judgment liens because it is the seller’s obligation to provide the buyer with clear and marketable title at conveyance.
Satisfying the judgment is the best assurance that the title is lien free. The only exception to this rule is if the seller is given an opportunity by the title insurance company to execute a “Not-Me-Affidavit” swearing that the name of the person on the judgment lien is not them. Title companies will consider this if there is no indication that the seller and the judgment debtor are the same person. For example, if there is a judgment against John Smith with an address of 123 Main Street, and the seller signs an affidavit stating he is not the John Smith listed in the judgment and that he has never lived at 123 Main Street, then the title company may insure without exception for the new buyer and their lender. In some cases, buyers are given this opportunity as well. Again, this opportunity is strictly a right given by the title insurance company. There are no guarantees it will be offered as an option if a lien is discovered.
The good news… if this is considered good news… if a judgment lien is not renewed, it will attach to real property for only 10 (or 20) years, and then it will have no further impact on the real property.
I will end where I started. A title search is very important. It can and it does save buyers and sellers a lot of hard ache and headache. Investing in a title search and purchasing title insurance may prove to be one of the best investments you could have made.
Published by Teta Jackson on April 29, 2019.