Real Estate Title Issues: Buyers Need to Protect Their Rights

TL;DR Buying a home? You probably want to get owner's title insurance to protect your real estate rights. It's a one-time cost, and you can get an estimate from Bluegrass Land Title (270-261-4313) in Elizabethtown, Kentucky.

Mortgage Title Certificate

A Kentucky property title is a bundle of rights or sometimes referred to as a “bundle of sticks”. The idea is that individual rights, or sticks, represent specific benefits. Someone can own either a legal interest or an equitable interest in individual rights. You need to be concerned with all past owners, not just the ones selling the property. Each right can be sold, rented, or transferred.

Possession
Control
Enjoyment
Exclusion
Disposition

It's important to realize that renters (tenants) have rights and you may not be able to kick a tenant out just because you bought the property. Read the lease and get with your lawyer.

In most cases, new homeowners expect to have full control over all of these rights yet that rarely happens due to encumbrances. Ownership rights affect property values. Elizabethtown Real Estate Encumbrances:
What is an encumbrance? An encumbrance is a limitation on, claim, or liability against real estate property by another party. It restricts transferability and could prevent free use. Types of encumbrances with common examples:

Lien: Usually because of a mortgage but sometimes because of unpaid real estate property taxes. A property tax lien becomes first priority. Liens are non-ownership restrictions; you own the property; your mortgage lender does not.
Deed restrictions: Also subdivision restrictions and homeowners' associations. Property limitations that run with the land such as “no above-ground pools”. If you buy a lot with plans to build a home, be sure to look for minimum and maximum square footage restrictions.
Easements: A non-owner's legal right to use the property. Utility easements are the most common. A less common example would be a “landlocked” neighbor whose driveway cuts through your property. These also run with the land.
Encroachments: When the neighbor built his garage, he crossed the property line. A misplaced fence is probably the most common.
Licenses: Just privileges that can be revoked. You allow your neighbor to park in your driveway.

Title insurance is different from most other insurance policies because it protects you from the past. Most insurance policies protect you from something that will happen in the future (i.e. car accident).

Lender's title insurance policy vs owner's title insurance policy
Lender's title insurance protects the lender if a title issue arises, but it doesn't cover you if you have equity in the home. An owner's title policy is a one-time cost and protects you and your equity (up to policy limits).

It is common for many home buyers to fuss about the house they are buying without giving much thought to the property title. Many times, it is only after closing that they remember the title and look it over. When you find a home that interests you, get interested in the real estate title too. It is important that you check out the home you want to buy before making any final decision. Other than the physical inspection of the home and making sure that the price is reasonable, you must also look into the legal aspect of your intended purchase. You need to verify the real estate title by doing a title search. It is a necessary process to make sure that there will be no legal problems, defects, or title issues that may arise and complicate the transaction.

What is a Real Estate Title?
A real estate title is a legal document that confirms ownership of a real estate home by a certain individual. Upon sale of a home, ownership is transferred to the buyer along with the conveyance of the title document. In law, there are three elements of title: possession, the right of possession, and the right of property. Possession is occupancy of the real estate property while the right of possession is the legitimacy of occupying the property. Right of property refers to the right to claim ownership of the property and that no other claim may be made on the same property.

Title Search: Why is it Important?
According to statistics, approximately 26% of titles that were searched had issues. You can, and you should, correct real estate title issues before actually buying the property. Your lender will require a known title issue to be resolved prior to lending you money to buy the home. Acquiring a property that has title issues can create legal problems for the new owner. Therefore, make sure to perform a title search before finalizing your purchase of any property. In case title issues come to light as a result of your title search prior to the purchase, it is the seller's responsibility to correct them. If it turns out that correcting the title issue will not be easy or simple and might take some time, you have the choice to back out and look for another property without title issues. Make sure this clause is in your real estate contract.

Common Real Estate Title Issues

Erroneous title handling: Many title issues arise from erroneous handling of the title. This normally happens when people prepare their own legal documents. The result is usually an inadequate deed that does not fully reflect their intentions on the transaction.

Contested ownership: Contested ownership is another common real estate title issue. Someone else may lay a claim on the property that is already under the possession of another. This is a usual problem when the owner dies without a will or if the will cannot be found and a family squabble ensues.

Fraud or forgery: You also have to watch out for cases of fraud or forgery such as when a person other than the legitimate owner sells the property as if it were his own. If the real owner or a rightful heir makes a claim and files a complaint, the buyer will have to bear the cost of settlement.

Outstanding hitch on the property: Title issues may also involve some other outstanding hitch on the property. An example is when there are structures built on the property without the required permits. If you are the new owner, you could end up paying for the removal of the structure when ordered by the county.

What You Should Do
Investing in real estate (yes, your home is an investment) is serious business and it is best to consult with a professional. Hire a lawyer to handle the legal paperwork of your transaction to avoid ambiguity and misunderstanding in the documentation of your intentions. Be diligent and conduct thorough research on the property to uncover all possible problems so you can take appropriate steps to resolve them as early as possible. Make sure that the property you are buying is free of title issues to ensure a problem-free assumption of ownership and occupancy of the property. Furthermore, it is a good idea to get title insurance. It may seem to be an unnecessary expense at first, but it will surely come in handy when you need it.

HardinHomes.com LLC is a real estate brokerage and does not give legal advice. For legal questions or title advice, please direct your questions to Sean Lewis, Market President at Bluegrass Land Title, LLC (270-261-4313). Bluegrass Land Title is our preferred title company due to their extremely high quality and great customer service.

"Home" is synonymous with property in this article. Property refers to land and structures on the land.
Locations such as Elizabethtown and Fort Knox are used as examples as this article applies to all areas of Kentucky.
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