Identifying Warning Signs in Public Real Estate Documents for Potential Homebuyers
Investigating Property Red Flags Before Home Purchase
When buying a property, it's essential to delve into the property's history to avoid potential issues. Here's a guide on how to investigate and resolve red flags in property records before closing a home purchase.
1. Ownership Discrepancies
Verify the current legal owner(s) on the title record through a thorough title search conducted by a title company or title abstractor. Any missing or unauthorized owners require correction, often by updated deeds or agreements before closing.
2. Unresolved Liens
Conduct a comprehensive title search examining county records for outstanding liens, such as mortgages, judgment liens, or writs of attachment. If liens are found, they must be resolved by paying off the debt, negotiating settlements, or obtaining lien releases recorded publicly. Title insurance can provide protection if any liens are discovered after closing.
3. Zoning Violations
Research zoning compliance through local municipal or county zoning offices to confirm the property conforms with current zoning laws and restrictions. Address violations or obtain necessary permits prior to purchase to avoid future legal or use restrictions.
4. Inconsistent Property Descriptions
Compare property descriptions in public records, deeds, and the sales contract carefully. Discrepancies in lot size, boundaries, or legal descriptions must be clarified with a survey or corrected deeds to prevent disputes post-purchase.
5. Pending Litigation
Check local court records for any lawsuits involving the property or seller that might affect ownership or usage rights. If litigation is pending, understand the risks and whether it can be resolved or must be disclosed and accounted for before closing.
6. Title History Red Flags
Engage experienced title abstractors for a detailed title history report that includes ownership history, recorded encumbrances, easements, liens, judgments, and tax records. Domestic abstractors are recommended for accuracy and thorough knowledge of local legal recording systems.
If title defects or encumbrances are uncovered, they typically must be "cured" before closing—this might involve corrected deeds (e.g., quitclaim deeds), payoff of debts, or legal actions to clear defects. Once resolved, a title insurance policy can be issued to guarantee a clean, marketable title, protecting you from future claims related to past defects.
Additional Tips
- Buyers may request that the seller purchase a title clearance service to deal with a clouded title as part of the negotiations.
- It is also good to compare the public record's reported lot size and square footage against what the seller describes.
- Prospective buyers should compare the public property description with the in-person tour, noting any discrepancies.
- A comprehensive search is a requirement for buyers looking for a title insurance policy.
- Properties with an active lien are considered "clouded titles."
- It is possible to negotiate a lower price if a red flag is found during the title search.
- When assessing personal-finance matters related to real-estate investment, it's crucial to scrutinize the property's title history to identify and correct any missing or unauthorized owners, outstanding liens, zoning violations, inconsistent property descriptions, pending litigation, or title history red flags that may affect the financial investment.
- Proactively investigating potential real-estate investments involves considering the financial implication of addressing title defects or encumbrances, such as paying off debts, acquiring title clearance services, or negotiating a lower purchase price, all of which contribute to the overall financial management of the investment process.
