Hidden Dangers Involved In Taking Title to Real Estate
You paid for the property, you took possession of the deed, and your ownership is recorded at the county courthouse. So it’s yours, right? Well, not necessarily – it’s considerably more complicated than that. After all, you bought real estate, not a Barbie doll.
The first question you need to ask before buying a piece of real estate is, “Does the person who is selling this property to me actually own it?” Just because he holds a title deed in his name doesn’t mean he owns it. In fact, even if he is recorded as the owner at the courthouse, he might not own it. Even if he thinks he owns it, he might not own it. Perhaps the person who sold it to the person who sold it to the person who sold it to the person who sold it to you also sold it to Person A way back in 1937, Person A sold it to Person B in 1967, and Person B decides to sue you for title to the property 15 years after you bought it. Person B may or may not win the lawsuit, but either way it’s going to cost you time and trouble and make it virtually impossible to sell the property while the lawsuit is pending. This situation is what is known in Legalese as a “title defect”. Of course, almost everyone has a property lawyer check the chain of title at the local courthouse or property records office before buying. The problem is, not all title defects are apparent from examining property records. Several safeguards exist to minimize your risk, and it is important to know how they work.
The most common safeguard is title insurance. When you apply for title insurance, the title insurance company will send their lawyer to the courthouse to check the chain of title. If they conclude that the title is free of defect, they will insure the title. Another safeguard is the use of a warranty deed, which contains warranties by the seller that allow you to sue him if the title he transferred to you is defective. Never take property under a quitclaim deed, because a quitclaim deed merely states that the seller is transferring to you whatever title he has, if any – in other words, you can’t sue him on the deed even if it turns out he never owned the property in the first place. There may be other grounds to sue him, but they are decidedly inconvenient. The weakest safeguard of all is called a statutory deed, which are legal protections offered in some states that are designed to offer at least some of the protections of warranty deeds.
DISCLAIMER: The foregoing is intended for reference purposes only and not as legal advice.