How Owner’s Title Insurance Can Save Your Short Sale – Massachusetts – New England

How Owner’s Title Insurance Can Save Your Short Sale – Massachusetts – New England

Amanda Zuretti, Esq.  Title Counsel (admitted in MA and NH) – CATIC – No part may be reproduced without permission.

One of the benefits of buying real estate at closing is that title to the real estate must be free of any claims, liens and encumbrances, just as in an ordinary closing.  Providing “good and clear record and marketable title to the Property” is a requirement in standard Purchase and Sale Agreements and is often shown in the form below:

Title and Possession.

(a) At the Closing, Seller shall convey to Purchaser or to a nominee designated by the Buyer by notice to the Seller given at least seven days prior to the Closing, by quitclaim deed, good and clear record and marketable title to the Property free from encumbrances except:

(i)     such taxes for the then current tax year as are not due and payable on the Closing Date;

(ii)   any liens for municipal betterment assessed after the date of this Agreement;

(iii) the Leases, if any; and

(iv)  the Permitted Exceptions (as defined in subsection 5(b) below.

The words “clear,” “record,” and “marketable” as they describe the quality of title are terms of art that are defined by state law.  “Insurable title” from that Seller is not acceptable unless agreed to between the parties in writing.  Generally speaking:

  • “Clear” title means that the record owner holds title to locus without any claims by others and no history of past claims affects the record owner’s rights in and to locus;
  • “Record” title means title as it appears in the records of the Registry of Deeds and/or Land Court;
  • “Marketable” title is that which has no encumbrances burdening it (such as a mortgage, lien or claim) and which is free of any reasonable objection, such that a court would enforce a suit for specific performance; and
  • “Insurable” title means title to real property that may have a defect, but which a title insurer agrees to insure.

To obtain “clear, record, and marketable title”, the Seller must remove any encumbrances that burden his or her title, such as mortgages, liens, unpaid real estate taxes or condominium common charges, prior to conveyance.  Where the Seller’s title is encumbered by mortgages or liens, the closing attorney’s duty to the lender is to disburse such payments as may be necessary to clear mortgages, claims, or liens such as Mortgages, UCC-1 fixture filings, mechanics’ liens, creditors’ attachments or executions, or federal, state and local tax liens.

But what happens if the mortgages, claims, or liens on title are liens against previous owners?  If the current owner, who is the short sale Seller has an owner’s policy of title insurance, the title insurer can step in to make the transaction possible by doing one of three things: Repair the defect; indemnify another underwriter, or indemnify another underwriter and undertake to repair the defect.

And if the short sale Seller doesn’t have title insurance?  Then the seller or Seller’s counsel will have to clear the title before the sale can be completed—and sometimes, that’s a deal breaker.

Amanda Zuretti, Esq.

Title Counsel (admitted in MA and NH)
1700 West Park Drive, Suite 210
Westborough, MA 01581

Office:  781.237.8770 x 2301

Cell: 508.614.5723

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