You’re ready to buy your dream farm. It’s that 200-acre tract that borders the river, and everyone in your community has salivated over it for years. But does it have a clear title for the land? Are there any liens on the farm land? What did the title search and other title work reveal? With a clean title, you’re ready to buy. With a cloudy title, it’s time to pump the brakes. Read on to learn more about clear titles in land auctions.
Editor’s Note: This is not financial, investment, legal, or real estate advice. Consult with a financial planner, investment specialist, real estate lawyer, and real estate professional before buying or selling land at auction.
What Is a Clear Title for Land?
Prospective land buyers might wonder, what does it mean to have a clear title? A clear title with a property sold at a land auction signals that it is free of encumbrances, title liens, property levies, legal issues, and other real estate problems. To legally buy and transfer a property, a clean title is mandatory, as true ownership would be challengeable, not to mention liability concerns.
“A clear title means there are no liens and no encumbrances on the property that would prevent the property from transferring to the new owner,” said Camron Stover, a Whitetail Properties Land Specialist in Ohio and West Virginia. “There is no cloud or anything like that on the title. By definition, a lien would be a debt needed to be paid. Maybe there’s a loan on the property. Perhaps it is being utilized as collateral.”
Ultimately, a clean title guarantees no hidden debts or obscure problems that would prevent the property transfer. It notes that the seller has complete legal right to sell the farm.
It’s crucial to ensure a buyer is receiving a clean title. Without it, there are no guarantees, and even if the property transfers, the new owner could become liable for remaining issues. Generally, title insurance (which buyers need) isn’t offered for real estate with known title encumbrances and liens. Furthermore, when lending is involved, it’s entirely mandatory, as they’ll balk at the first sign of titling issues.
What Is a Title Search?
The title search is the process required to ensure the title is clear. Simply, it assures transparency in the land sales transaction. Oftentimes, clear titles are referred to as just that, or other terms, such as, “absolute title,” “clean titles,” “free and clear title,” “marketable title,” and more.
When conducting title work, those doing it will complete a title search. This entails multiple things, most of which check for potential pitfalls that would prevent the property from transferring.
“The title search will confirm whether or not there are any liens, including mechanic liens, liens from a mortgage, tax liens, or any other cloud that would need to be paid before the property can be transferred,” Stover said.
What Does Title Work Entail?
The overarching title work requires a bit of time and energy to complete. It isn’t something that you call in and get back same-day. This is a lengthy process that studies public records and other documentation, such as local court and tax records, associated with the tract(s) of interest. The deed is thoroughly inspected. Property surveys are examined. The chain of title over time is inspected to ensure no discrepancies or gaps in previous sales.
Overall, the title work tends to look back approximately 50 to 60 years (sometimes further) to determine if any liens, encumbrances, or other issues are attached to the property in question. All available information associated with the property is examined.
Typically, the closing process steps unfold as follows:
- Present the winning bid.
- Have an attorney immediately look at the auction contract, which is handled by the land broker.
- The title order and contract are sent by the broker to the title company.
- The title search representative who conducts searches and assembles all relevant information. They work with all relevant parties to complete the deed search and analysis.
- The title searcher completes the title work on the buyer, seller, and property.
- The title search report presents the findings and discloses any encumbrances and liens.
- A title examiner studies the findings, reviews all documents, and checks for additional issues.
- With no known issues found, the title is insured.
- A title commitment is presented to the buyer, seller, and broker.
- A closing date is set.
- All parties move forward with and complete the closing process at signing. Fees are paid.
- The lender (if involved in the deal) approves and disburses the funds.
- The remaining sum of the property sale payment is presented and placed in escrow.
- All documents are finalized and recorded.
- The property transfers from seller to buyer.
“You're also looking at rights-of-way and access to make sure of what and where the easements are located and where these go through the property,” Stover said. “Also, a check for any encumbrances is a significant part of it.”
What Are Liens on Farmland and Other Common Title Issues?
A lien on a farm, or other real estate, are levies placed on it by another interested party. These come in the form of civil lawsuit judgements, mechanic’s liens (i.e.: unpaid bills to home contractor’s), outstanding homeowner fees (i.e.: late homeowner’s association dues), unpaid child support or alimony, income tax liens (i.e.: federal and state), property tax liens (i.e.: unpaid local property taxes or outstanding payments to other taxing jurisdictions), and more.
While Ranch & Farm Auctions has a strong reputation for due diligence, and ensuring properties brought to action undergo preliminary title work to determine if any encumbrances and liens are present, aspiring bidders should always do their due diligence. With lower-quality auction houses, it’s not out of the question for a property to have issues. Ultimately, it studies and verifies ownership and uncovers potential defects.
Title issues often arise from heir (inheritance) complexities, with contested ownership claims, amidst lawsuits, during (or after) divorce cases, with moderate to severe financial debt, when trusts are in play, and more. Other common title issues that can result in clouded titles include fraud cases, legal actions, unresolved probate, property boundary conflicts, and much more. Thus, the importance of a title search, which commits to unveiling such challenges.
Fortunately, in most cases, unexpected title issues are innocent mistakes. Typically, these are relatively quick, easy, and inexpensive to remedy. Other times, it might require a significant amount of time and money to amend cloudy titles.
Who Pays for the Title Work and Closing Costs?
Many prospective buyers ask, when it comes to the title work, does the buyer or the seller pay for that? In real estate, it’s negotiable. However, unless negotiated differently, one side tends to cover that portion of the costs more than the other.
“With most of the deals that I've been a part of, it's usually the buyer that's doing that,” Stover said. “However, the seller is promising that they have a clear title. Now, as for the discussion of who's to pay for that, this can be negotiated.”
Oftentimes, title work can cost 0.5 to 1% of the sale price of the real estate. Do the math, and you’ll have a rough approximation of expected fees.
How to Choose the Right Title Company?
It’s important to work with the right title company and understand the process. Of course, there are no differences in title work between a traditional real estate listing and a land auction. That process looks the same no matter how land is sold.
“It’s exactly the same,” Stover said. “It's just a matter of finding the company that you trust to do that. It still must go through the same checks and balances to make sure it's cleared to close.
“As far as title companies go, choosing the right title company for the task is a major step in the success of a closing,” Stover continued. “I’ve worked with title companies that aren't willing to go above and beyond to fix problems. I've also worked with title companies that make my job a lot easier. So, when I vet and approve of a title company, it's because they're an asset to the closing process for both the buyer and the seller, rather than just being there to complete a task.”
The same holds true for all title companies utilized by Ranch & Farm Auctions.
In summary, a good title company will ensure important rights for the buyer upon transfer. These include rights of ownership, possession, control, use, exclusion, and much more.
Buying and Selling Land with Ranch & Farm Auctions
For landowners looking to sell at auction, contact Ranch & Farm Auctions. We can answer questions and help with your auctioneering needs. For buyers hoping to purchase land, check out some of the upcoming Ranch & Farm Auctions near you.