An important part of each title search consists of an open mortgage search. Ideally, when one homeowner sells to another individual, everything goes perfectly, and the seller’s mortgage gets paid in full while the buyer’s mortgage begins.
That doesn’t always happen, though. Sometimes, either due to an error in titling, or due to a bank error, the previous homeowner’s mortgage continues to appear on the title, creating what we call a cloud on the title. That cloud functions just the same way a lien on the property would.
Why the Cloud Matters
Every lien, loan, or easement listed on the title provides that organization or individual a right to the property. The seller of the property needs to show unfettered ownership of the property for the sale to go through.
When the current owner tries to sell their home, the appearance of no clear title can stop their sale. Thus, one of the most important processes Real Title Services does during a title search consists of an extensive open mortgage search.
If the sale of a property with a cloud on the title does go through, the buyer of the home also purchases all debts and liens on the property. In the case of an open mortgage, they’d take on an extra home loan! The bank or other financial institution that issued it could attempt to collect the money still owed on the property.
How the Homeowner Can Fix the Problem
The homeowner has recourse via their title insurance. They have two options available to them:
- Contact the previous owner’s mortgage company. Since they secured the loan, they can rectify the problem. Request a full reconveyance of the prior owner’s mortgage to record on the property. When the company complies and records the full reconveyance, the cloud clears.
- Contact the title insurers. The homeowner needs to contact both their title insurance company and their lender’s title company. Explain that the previous owner’s mortgage appears on the title search for the home. The homeowner files a claim on their insurance. It becomes the duty of the title insurance company to remove the previous owner’s mortgage.
Sometimes, the title insurance company refuses to clear the title cloud by the needed date. At this point, the homeowner will need to consult with an attorney specializing in real estate. Occasionally, a homeowner must file a lawsuit against the title insurers to get the old mortgage removed.
At Real Title Services, we specialize in efficient, error-free, nationwide title searches for title agencies that let home sellers and homebuyers feel at ease and close on their homes stress-free. Let us help you enjoy a worry-free real estate purchase. Contact us for a title search for yourself or your clients.