Title Exceptions

What Are Monetary Liens?

When reviewing a title report, a key aspect is reviewing the exceptions listed on the report – essentially those items that the title company will not insure against.  These exceptions can represent potential roadblocks to development plans and impacts on property value.  Financial liens, such as deeds of trust, mortgages, court judgments, and mechanics liens are examples of monetary encumbrances that may need to be satisfied to clean up title.

It is very common in the land purchase contract that the buyer will want the property to be conveyed free of any monetary liens.  So in the case of deeds of trust or mortgages, the escrow process will pay off the lenders who will in turn sign reconveyances to release these financial liens from title.  As example, let’s say that the purchase price is $1.0 million and a deed of trust on title is $400,000.  The escrow officer will request from that lender a payment demand – what is actually due on the loan at the projected date of close.  If the lender submits a payment demand of $300,000, being the amount to pay off the loan, the seller will be only receiving $700,000 in net sales proceeds (prior to other escrow costs and deductions) after the escrow officer pays off the lender.

All of this happens during the escrow process.  The lender gets the loan paid off, the buyer gets the property conveyed with no financial liens, and the seller gets the net sales proceeds.  These financial payoffs are reflected in the closing settlement statement.

Just a note on court judgments and mechanics liens.  In some cases, these financial liens may be difficult to settle because the seller does not believe they are warranted.  You will want to confer with your title attorney to determine how to best approach these title encumbrances.

As always, please share with us below any of your comments and questions.