Family members often transfer properties to one another, or inherit properties from loved ones, yet they rarely put safety measures in place when doing so. They wrongfully assume that they would know of any potential issues with the property because it’s been in the family. The reality is that life gets busy, people forget about issues that happened decades ago, and sometimes they miss legal requirements simply because they didn’t know of the requirements.
Let's explore a typical scenario:
Jim wants to transfer his father’s home into his own name. After considering the many risks of doing so, Jim and his father have decided that this is the best option. It’s been well-maintained, more affordable for Jim than other housing options, and it’s filled with lifelong memories. In fact, Jim’s father inherited the house from his father. The quickest way to transfer the property (and most common) is to simply record a new deed transferring ownership from his father to himself. Jim now owns the property. Simple, quick, and cheap. Until it’s not…
Ten years later, Jim’s circumstances have changed and he needs to sell the house. When the buyer’s title company does the search, a number of issues come up, including a number of unpaid liens and learning that his grandfather's estate was never administered. Jim had no idea he’d have to take on the responsibility of these past debts and issues. This process will be time-consuming and costly. Jim is already struggling financially and delaying selling the house will create some hardships for him. So, what could Jim have done differently? At the time of the deed transfer from Jim’s father to himself, he should have paid for a title search, obtained an owner’s title insurance policy to protect himself from future issues, and retained an estate attorney to deal with the grandfather’s unresolved estate.
I sought the expertise of Anne Anastasi, Founder of Genesis Abstract and President of Troon Management Company (and avid animal lover/activist), to further explain what a title search
is and why an owner’s title insurance policy is so important.
What is a title search?
A title search is broken into three main parts: (1) Going back to records of every owner of the property and ensuring all owners properly conveyed the property, (2) searching for any liens during each owner’s ownership, and (3) confirming that any liens were properly removed so that the current owner has the right to sell the property free and clear. In doing the search, the title company will also locate and share with you any easements or rights of way on the property (i.e. right for PECO to replace new lines on your property).
What are the most common risks of skipping the search in a familial transfer? The risks may include the following:
· Liens against the property for unpaid taxes, mortgages, judgments, contractors, etc.
· Unpaid child support payments
· Mortgage satisfaction never recorded
· Boundary disputes, easements, unrecorded property agreements with a neighbor
· You or a former owner failing to probate an estate properly
· Unpaid inheritance taxes
· A Will in the chain of title leaving the property to a specific beneficiary
· Multiple estates and inheritance tax returns due if the family home was wrongfully transferred through the generations
· Having to locate beneficiaries from each estate or other family members, some of whom may now be deceased or unable to sign documents
If I pay for a title search and no issues arise (or they are all resolved at the time of the search), why do I need an owner’s title insurance policy?
The policy protects the buyer from any missed liens, mortgages, judgments, and issues that otherwise should have been discovered at the time of the search. It provides protection to the buyers that when they later try to sell the property, they will have the proof they need to proceed with the sale. It also protects you from the things that cannot be found on the public record such as forgeries, missing heirs, unpaid condominium dues, mental incompetency of a seller, impersonations of the true owners. More specifically, it provides the necessary protection that all rightful parties conveyed their interests, all previous liens have been removed, all inheritance taxes and real estate taxes are paid, and protects against fraud or forgery of any deeds in the chain of title. By having this policy, you will not be financially harmed if any covered issues that later arise, and the policy covers the legal costs incurred.
I’ve heard that the title search process can be costly and slow. Is that true?
A title search can cost several hundred dollars and the insurance policy varies depending on the property value. However, when considering the significant costs of any potential risks, it’s a worthwhile expense and the premium is paid only once, it is not an annual fee, and the policy stays in effect for as long as you own the property. The search itself takes time because the title company needs to go through the records, read every document ever recorded against the property with a “fine-tooth comb” and make sure there are no issues over 60 years and many times decades more. The title company needs time to be thorough and complete a full search. This is for your protection.
A Cautionary Tale for Estates: A current and popular scam is occurring with alarming frequency. Criminals record forged deeds from the estate of the decedent transferring the property to their own entity and then they either quickly flip the property to a third party or they borrow money using the property as collateral and walk away with the equity (and of course, they disappear). All of this can happen in a matter of weeks before the family has had time to grieve. Many recording offices in our local counties have a service that allows you to register your property parcel number so that you will receive notices if a document is recorded affecting the property. Check your county’s Recorder of Deeds website for fraud alert assistance. For instructions on how to sign up for FraudSleuth, Montgomery County’s free fraud alert system, click here https://www.montgomerycountypa.gov/2909/Fraud-Protection and watch the video for easy-to-follow instructions.