Navigating Common Title Issues in Foreclosure Sales

When a homeowner defaults on a mortgage, the lender or the loan owner (the bank) may decide to foreclose. Before foreclosing, the bank orders a title search to name all parties who have an interest in the property–like lien holders and judgment holders–and clear them off the title.

This blog will discuss some common title issues in foreclosure sales.

What are Foreclosure Sales?

At the end of the foreclosure process, there is a foreclosure sale. The mortgaged property is usually sold at auction or transferred back to the lender after the lender (usually a bank) has completed the foreclosure process.

Phases of Foreclosure

• Payment Default
• Notice of Default
• Notice of Trustee’s Sale
• Notice of Trustee’s Sale
• Trustee’s Sale
• Real Estate Owned (REO)
• Eviction

Common Title Issues in Foreclosure Sales

Let us navigate common issues which may arise in foreclosure sales one by one.

1. Errors in the Deed

Buying a home is often one of the most exciting and gratifying experiences in life. You work with a realtor, enter into a contract, attend the closing, and then finally become a homeowner!

When a real estate transaction closes, the deed is recorded in the county recorder’s office. The deed describes the property and spells out who owns it.

There are a number of common title issues that can impact your sale. Some errors are easy to correct while others require more time, effort, and money to fix.

For example, a small discrepancy in a legal description can cause problems down the road. Even a misplaced middle initial or transposed lot number could make it difficult to sell your home or purchase another property in the future.

If you notice an error in a deed, take immediate action to resolve the issue. This will prevent future buyers or lenders from being unable to trace property ownership and liens by the deed’s legal description.

2. Liens or Encumbrances

Encumbrances or liens are a common title issue in foreclosure sales. They can significantly limit your ability to transfer ownership of the property and can even impact the value of the property.

A lien is a claim on the property that gives the holder a legal right to seize it if the owner fails to pay an outstanding debt. Examples of liens include mortgage liens and mechanic’s liens.

Liens can be voluntary or involuntary. Voluntary liens are usually resolved after the homeowner pays the debt off. Involuntary liens are more complex and often require the assistance of an attorney to resolve.

When purchasing real estate, you should always have a thorough understanding of all the liens and encumbrances on the property. This knowledge can help you avoid unexpected surprises down the road and ensure a smooth and successful transaction.

3. Lien Releases

Liens are a great way for creditors to claim ownership of a property if the borrower falls behind on their payments. Mortgage liens, tax liens, and mechanic’s liens are just a few of the ways a creditor can get a piece of real estate their way.

A mortgage lien is one of the first liens recorded on a property. It usually comes in the form of a deed in lieu of foreclosure, and it is the best known of all the types of liens.

It is important to note that paying off a mortgage lien will not remove it from the public record. A corresponding release, satisfaction, or reconveyance of the deed is required to clear the lien. This is why it is important to hire a qualified title company when you are looking to purchase a property with a lien. It will save you time and money in the long run! If you are looking to buy a home with a lien, don’t be afraid to ask questions.

4. Unresolved Issues

Before a bank markets a foreclosed property, it orders a title search to clear the title of any judgments or liens. Ideally, these issues are resolved so the home can be sold without further complications.

However, it isn’t uncommon for unresolved issues to remain on the title after a foreclosure sale. These issues, known as clouds on the title, can impair or invalidate a property’s title and make it difficult or impossible to sell.

If these issues are unresolved, they may need to be addressed through quiet title actions. These proceedings can be expensive, and time-consuming, and may require the help of an attorney.

For example, prior unreleased deeds of trust, unpaid taxes, sewer liens, subdivision liens, IRS liens, and other encumbrances can be difficult to remove. These problems often appear months after a foreclosure sale and may take years to resolve.

Conclusion

In conclusion, it is essential to navigating common title issues in foreclosure sales. This will ensure provide you valuable protection when you are investing in any property. Also, you must pay attention to these issues as the bank may skip any of them.

To overcome such risks try to purchase title insurance and ensure your money is safe.