The Purchase & Sale Contract (P&S) form used by the Vermont Association of Realtors® (VAR) calls for the seller to convey to the buyer marketable title without encumbrances or defects. Occasionally, the title search by the buyer’s attorney discovers such problems.
Usually title issues are easily corrected, but not always. In 1997 a court case, Bianchi v. Lorentz, resulted in delayed closings all over the state. In the Bianci Decision, the Vermont Supreme Court ruled that violations of local land use regulations are a cloud on the title of property. As a result, closings all over the state were delayed when attorneys, who previously had only checked for an unbroken chain of conveyance, now focused on permits as well. If a house was situated on a land parcel which had not been properly subdivided 20 years ago, the defect had to be cured before a transfer could take place. VAR added a paragraph to its P&S and the Vermont legislature passed an act defining the standards for municipal recording of land use permits.
The typical title defect is a previously discharged mortgage which was never recorded. If the land records show a mortgage lien from 15 years ago two owners back (somehow overlooked in previous title searches) even though it may seem obvious that it had to have been discharged; for title work, a lawyer needs documentation. Suppose the lien holder, ABC Mortgage Company in New York City, is no longer in existence. In order to convey marketable title, the seller must prove that the property is, in fact, no longer encumbered by that lien. A researcher in NYC must be hired to dig through the catacombs and find the evidence. While this is relatively garden-variety, it takes time and may delay the closing.
Can anything be done to avoid the possibility of a delayed closing because of a cloud on the title? Yes, the buyer can instruct his or her attorney to examine the title early on in the transaction rather than just before closing. Usually the title search is done after the inspection contingency has been satisfied and after there has been a loan commitment. Ordering events in this way protects the buyer from having to pay for an unnecessary title search if the deal falls apart over other issues. If the buyer is willing to risk the fee, the title search can be done near the beginning of the transaction.