Introduction

Title defects are issues that cloud or challenge the legal ownership of a property, potentially disrupting real estate transactions and exposing buyers, sellers, and lenders to significant risk. In commercial real estate, where transactions involve substantial investments and complex ownership histories, identifying and resolving title defects is a critical part of the due diligence and closing process. A title defect, if left undiscovered, can delay closing, reduce property value, compromise financing, or even lead to litigation. Understanding the most common title defects and how they arise helps stakeholders protect their interests and ensure smoother, more secure transactions.

Errors or Omissions in Public Records

Mistakes made during previous record-keeping or document filing processes are a frequent source of title defects. These can include typographical errors in names, inaccuracies in property legal descriptions, unrecorded document amendments, or misfiled deeds. Even minor errors can create ambiguity about ownership or boundaries, requiring correction before a transaction can proceed. Public record inaccuracies can also affect the ability to obtain clear title insurance without exceptions.

Unknown or Undiscovered Liens

Liens are legal claims against a property for unpaid debts and can attach without the property owner’s active knowledge. Common examples include tax liens, mechanics’ liens from unpaid contractors, judgment liens from lawsuits, or unpaid homeowners’ association dues. If liens are not satisfied before or at closing, they can remain attached to the property and expose the new owner to liability. A thorough title search is essential to uncover any outstanding liens that could derail a transaction.

Easements and Encroachments

Easements grant third parties limited rights to use portions of a property for specific purposes, such as utility access, roadways, or drainage. While many easements are recorded and easily discoverable, others may be informal or improperly documented. Easements can restrict a property’s development potential or diminish its value, especially in commercial projects requiring full site utilization. Encroachments, where a structure from a neighboring property extends onto the subject land, can also constitute a title defect that must be resolved through boundary agreements or legal action.

Unknown or Missing Heirs

Properties that have passed through multiple generations without clear succession or properties sold through probate may face claims from unknown or missing heirs. If a deceased owner’s estate was not properly settled, heirs may surface years later with legitimate ownership claims. Title searches typically review probate records, but imperfect documentation or overlooked descendants can create complications that must be addressed before finalizing a transfer.

Boundary and Survey Discrepancies

Discrepancies between property lines described in deeds and the actual physical boundaries revealed by surveys are another common defect. Such inconsistencies can lead to disputes over ownership of portions of land, encroachments, or violations of setback requirements. A current ALTA (American Land Title Association) survey is often required in commercial transactions to verify that the physical reality of the property matches the legal description.

Forgery and Fraud

Historically, instances of forged deeds, fraudulent transfers, or impersonations in the chain of title have left lingering defects. While relatively rare, forged documents can invalidate prior ownership transfers and expose current owners to legal claims. Title insurance helps protect against losses arising from these hidden risks, but a careful review of historical transactions during due diligence remains important.

Undisclosed or Improperly Released Mortgages

Sometimes prior mortgages are not properly released after being paid off, resulting in the appearance that a lender still holds a financial interest in the property. These “ghost mortgages” must be cleared through recording proper releases or affidavits. In some cases, lenders that no longer exist, due to mergers or dissolutions, complicate the process of obtaining a necessary release.

Restrictive Covenants and Deed Restrictions

Certain properties are subject to restrictive covenants that limit how they can be used, such as prohibitions on specific business types, architectural requirements, or land use limitations. Some restrictions, although decades old, remain enforceable and can interfere with redevelopment or operational plans. Reviewing all recorded covenants and understanding their impact is essential to avoid inadvertently violating enforceable conditions.

Pending Litigation and Claims

A property involved in ongoing litigation—such as partition actions, foreclosure proceedings, boundary disputes, or adverse possession claims—presents significant risk to buyers and lenders. Lis pendens filings, which are notices of pending lawsuits affecting property, should be checked during the title search. Properties subject to unresolved legal actions must often resolve or settle those matters before they can be transferred with clear title.

Bankruptcy-Related Issues

When a previous or current owner has been involved in bankruptcy proceedings, there may be questions about the validity of property transfers or outstanding creditor claims. In bankruptcy cases, court approval may be required for property sales, and failure to comply with these requirements can create defects that cloud the title.

Conclusion

Title defects are varied and often complex, but their impact on real estate transactions—particularly in commercial settings—can be profound. Whether originating from clerical errors, unresolved liens, boundary inconsistencies, or hidden claims, defects must be identified, analyzed, and corrected before proceeding with a sale or financing. Through diligent title searches, surveys, legal reviews, and the use of title insurance, stakeholders can safeguard their interests, ensuring that ownership rights are secure and that transactions close with confidence. Recognizing and addressing common title defects is not merely a technical exercise but a strategic necessity in managing risk and protecting real estate investments.

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