“Title defect” - just the phrase itself is enough to strike fear into the hearts of homebuyers and sellers alike!
Just like how the property itself may have defects such as shoddy construction, a termite infestation or accumulated wear-and-tear, the Title can also come with defects.
Luckily, it doesn’t have to be a major problem.
TItle defects, despite the intimidating name, are actually relatively common and in many cases are completely harmless - provided that they’re disclosed up-front.
Of course, that doesn’t mean that they can be ignored - if you’re buying or selling a parcel of land, it’s crucial that these issues are sorted out before you sign on the dotted line.
And performing a Title searc is the first step towards that goal.
What is a Title defect?
Your first thought is probably things like improperly-recorded names, or boundaries that aren’t properly defined. While these are certainly issues, that isn't what we’re referring to when we talk about Title defects.
Titles is a complex document, with many different parts to it such as:
- Owner details
- Property boundaries
- Encumbrances
- Zoning information
Errors with each of these can be a type of Title defect - however, they aren’t the ones we’re going to focus on today.
Holding a Title confers certain rights and privileges onto the owner - however, in certain circumstances the Title can come with restrictions can interfere with the vendor’s ability to transfer the Title under the contract.
It can even prevent you from transferring the property at all!
While defects with the property or land may affect the sale price, they won’t fundamentally stop you from making a sale - Title defects do, which is why it’s so important that they’re resolved before the transfer is completed.
Latent vs patent defects
Under Australian law, it’s the seller’s responsibility to identify and resolve Title defects before transferring the Title over.
Alright, so that may be an oversimplification. It’s the seller’s responsibility to disclose and resolve latent defects in Title - that is to say, defects that it’s simply unreasonable for a buyer to identify on their own.
If the seller fails to disclose latent Title defects, the buyer is entitled to terminate the contract (assuming that the transfer is even able to occur while the defects are present).
Determining which Title defects are latent and which ones are patent is an important part of preparing a parcel of land for sale, and is a crucial step in ensuring that the process is smooth.
The most common Title defects
Mistakes and errors
The vast majority of the time, these don’t usually fall into the category of latent Title defects, and can be easily remedied by the seller.
However, there are some instances where mistakes and errors can be much bigger issues.
For example, if the Title for a property that’s jointly-owned contains errors regarding the way ownership and rights are shared, it can impact the seller’s ability to transfer the Title, and even prevent it altogether.
Mortgages
You might not realise it as a first-time homebuyer, but taking out a mortgage on a property means that the Title is transferred to the bank you’ve taken the mortgage out with until the mortgage is discharged in full.
When selling a property, the bank’s rights over the property can supersede the seller’s, preventing them from selling unless the bank is satisfied that their rights will be satisfied by the sale.
Superior claims
Lenders and mortgage brokers aren’t the only parties whose claims can supersede the seller’s - in some cases, creditors can also overrule the seller, and even put a lien on the property.
A lien gives creditors the right to hold an asset until the terms of the original loan are satisfied, or an acceptable compromise is found. When it comes to selling a property, this presents a fairly major Title defect.
Zoning requirements
Parcels of land in certain areas may be restricted to specific functions such as residential or commercial, with no wriggle room if a buyer wants to build something else instead.
Usually, this isn’t an issue. If it’s made clear that the buyer is intent on building a different type of property or erecting a mixed-use building, this can be a relevant Title defect that will need to be disclosed and settled in advance.
Unknown encumbrances
Easements, covenants and other encumbrances are recorded in the Certificate of Title, letting buyers know upfront whether or not other parties have rights with regards to the property they’re about to buy.
Improperly recording these encumbrances - or worse, not recording them at all - can be a type of Title defect, and can force you to cancel the sale if they’re discovered.
Uncovering and resolving Title defects begins with your Certificate of Title search
While our property information service may not be able to help with resolving Title defects, what we can help with is helping you uncover them - a crucial first step in helping you resolve them before putting your property on the market.
After all, in order to resolve a Title defect, you need to know about it first!
“Curing” a Title of its defects can take weeks, and is best left to a conveyancer, settlement agent or real estate lawyer. It also requires your Certificate of Title form for specialists to refer to when checking whether or not you’re affected by Title defects.
However, it isn’t just Title searches that our property information service can source for you.
In addition to Title certificates, our property information service also connects you with all of the other information you’ll need when selling a property or parcel of land.
Fix Title defects with PSI Global
The last thing you want when selling a parcel of land or property is a Title defect forcing you to stop your transfer, and losing a good offer as a result.
The best way to get around this is to identify and resolve Title defects as early as possible, rather than uncover them during the conveyancing process.
And the first thing you’ll need to do that is your Certificate of Title.
Whether you’re a seller, a conveyancer looking for an easier solution or a buyer who wants to learn more about the property you’re interested in, PSI Global is the place to start.
Start with a search right now!
The information in this article is general in nature and does not constitute legal advice. As with all things property, we strongly recommend consulting a professional to ensure that all stages of your building project (including the Title search) go smoothly.