A real estate seller is expected to convey a “clear title” at closing. That means that the title is not subject to any liens and is free and clear. If for example, the seller has a mortgage, s/he will request a payoff statement from the lender and that loan will be paid off at closing using the sale proceeds and discharged from the public records.
The buyer will usually obtain a title search/commitment prior to closing. This is always true if s/he is acquiring the property using mortgage financing, as all lenders require title searches. Even if the buyer is paying all cash, it is essential that the title be searched before closing.
The title search has a number of different components. The seller’s name will be searched in the court records for judgments. Any judgments against the seller must be paid off at closing, again using a payoff statement and the sale proceeds. If the seller has a common name, such as “John Smith,” there will be hundreds of pages of judgments which the seller will need to review and initial to confirm that name is not against the seller. Typically the judgments will be attached to the seller’s affidavit of title and specifically disclaimed in the affidavit.
Since a judgment is good in New Jersey for 20 years, the title company will search judgments for 20 years. If the seller’s ownership is less than 20 years, then the title company will search the name of the seller’s seller. If that reveals any judgments against that prior owner, they can be resolved in a couple of ways. First, if the seller obtained an owner’s title insurance policy that does not have an exception for the judgments, then the buyer’s title company will accept that policy to omit those prior owner judgments. Or if there is no title policy, but the seller has a copy of the prior owner’s affidavit of title disclaiming those judgments, then the title company should accept the affidavit and omit the prior owner judgments.
Sometimes a prior owner mortgage was paid off but not canceled of record. Then the seller will need to follow up with that lender to obtain a release. That can be difficult if that lender is no longer in business.
Or it may be that a mortgage or tax lien shows up on the title because the owner received a discharge of that item, but never submitted the discharge to the county for recording. Then perhaps the seller’s diligent search of his records will turn up an unrecorded discharge which can be submitted to the buyer’s title company at closing for recording.
This is just a small sample of the issues that can arise. It is crucial that a home seller has experienced legal counsel to assist in honoring his/her obligations under the contract of sale so that closing of title can take place.
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