Wednesday, February 24, 2010

Real estate title defects in Pennsylvania; Buying property subject to title defects.

I wrote earlier about buyers that purchase real estate with title defects because a settlement company cut corners. Some settlement companies, instead of fixing title defects resulting from tax sales, simply delay settlement for a year:

Keep in mind that the "one year period" has no legal significance. Title defects resulting from a tax sale do not go away after one year. If a buyer purchases a property under these conditions, the buyer will have difficulty selling the property, regardless of the fact that he used a corner-cutting settlement company to do an end run around the title defects.

The same reasoning applies to other title defects, like unpaid judgments, tax liens or unsatisfied mortgages. If you somehow buy a property with such a defect, even if you have purchased title insurance from a corner-cutting settlement company, you will suffer consequences when you try to sell the property.

  • Your buyer will refuse to complete the purchase until the defect is cured.
  • The settlement company through which you purchased the property may be out of business due to an excess of claims because of similar problems.
  • The settlement company through which you purchased the property might have excluded this defect from coverage without you realizing it.

Even if your settlement company covers your defect, you may find yourself in the middle of litigation or negotiation instead of collecting proceeds from a clean and simple settlement.

The point is, when you buy property, make sure any defects are addressed either by obtaining the proper releases from the parties holding the liens or by obtaining an "indemnification" from a nationally based title insurance company. Solve these problems before you complete settlement on your purchase.

I will write more about "indemnification" at a later date.

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