Obtaining title insurance and having a competent title agent complete an accurate title search is a vital component to any due diligence checklist for the acquisition or financing of real property. Such insurance protects a buyer against financial loss from title defects in real property. This article is meant to underscore the importance of both buyers and sellers hiring a competent title agent to write the title insurance.
It should be obvious as to why a buyer of real property would hire a competent title agent to review the title search and write the title policy. Title review is one of the major components in a due diligence checklist that all buyers should undertake before determining whether or not to purchase real property. However, it may be less obvious as to why a seller requires an equally diligent and competent agent to review title on property that the seller is looking to sell.
A very simple but potentially costly mistake would be for a title agent, who the buyer hired, to miss a lien (i.e. a mortgage lien) on the property. If the seller proceeded to close on property without paying off the mortgage lien that was not discovered by the title agent, then the seller could be in breach of the warranty deed that was signed when the seller conveyed title to the buyer, as most deeds require the seller to warrant that the property is being conveyed free of all encumbrances (except the property taxes that accrued the year of the sale). If this issue was not discovered until after the closing, the seller could be involved in a protracted and expensive lawsuit against the buyer and the lender. By the time the lien was discovered, the seller may have already spent the closing proceeds and would be personally liable to the lender to pay off the lien, especially if a personal guaranty had been executed. While the buyer would have a title policy to shield the buyer from this mistake, the seller would have no such claim under the buyer’s title policy.
This situation could result when a seller allows a buyer to choose the title agent and effectively gives the buyer control to choose the title agent (whether the agent is competent or not), all to the detriment of the seller.Buyers and sellers obviously want to keep closing costs low; however, allowing another party to control who reviews and completes the title work could cause a costly mistake that results in significant adverse financial consequences for the seller.
Blalock Walters takes great pride in effectively and efficiently reviewing title for both sellers and buyers, so please contact one of our real estate attorneys if you have questions in this area.