What Happens if a Title Problem Is Discovered Before Closing in Texas?

You're getting ready to buy or sell a home in Texas. The contract is signed, financing is moving forward, and closing is approaching.

Then a problem appears during the title review.



Maybe there's an old lien against the property. Perhaps a previous deed contains an error, an ownership question has surfaced, or the public records don't clearly establish who has the right to sell the property.

Does that mean the deal is over?

Not necessarily.

Many title problems can be addressed before closing, but they should not be ignored. Understanding what the issue is and what needs to happen next can help buyers and sellers protect themselves while working toward a successful transaction.

What Is a Title Problem?

“Title” refers to the legal right to own property.

Before a real estate transaction closes, the property's title is typically examined to identify issues that could affect ownership or another party's rights in the property.

A title problem, sometimes called a title defect, can arise when the records reveal a claim, error, lien, or other issue that needs to be addressed.

The severity can vary considerably. Some issues may be relatively straightforward to correct, while others can lead to significant delays or even require legal action.

What Are Some Common Title Problems in Texas?

Title issues can take many forms.

Unreleased Liens

A lien gives another party a legal claim involving the property.

A title search might reveal liens connected to:

• An unpaid mortgage
• Property taxes
• A court judgment
• Homeowners or condominium association charges
• Construction work or materials
• Other unpaid obligations

Sometimes a debt was actually paid years ago, but the proper release was never recorded. In that situation, documentation may be needed to establish that the lien should no longer appear against the property.

Problems With a Previous Deed

Errors or omissions in earlier deeds can also create questions about ownership.

A name may have been recorded incorrectly, a legal description may contain an error, or a previous transfer may not have been properly documented or recorded.

Even an issue that occurred long before the current buyer or seller became involved can surface during a later transaction.

Unknown or Missing Heirs

Property that passed through an estate can sometimes create title complications.

If ownership was not transferred correctly or someone with a potential inheritance interest was overlooked, an heir may later claim an interest in the property.

That claim may need to be addressed before a buyer can receive clear title.

Ownership Disputes

Sometimes more than one person claims an ownership interest in the property.

These disputes can arise from prior transfers, inheritance, divorce, boundary questions, or other circumstances.

When ownership itself is uncertain, resolving the issue may require more than simply correcting paperwork.

Errors in Public Records

Documents affecting real estate must generally be recorded properly so that the public record accurately reflects the property's history.

A document that was improperly filed, indexed, or recorded can create a title issue even when the underlying transaction occurred years ago.

How Is a Title Problem Usually Discovered?

Title companies play an important role in Texas real estate transactions.

Before issuing title insurance, a title examination reviews records affecting the property. These records may include deeds, mortgages, wills, divorce decrees, court judgments, tax records, liens, encumbrances, and maps.

The buyer may then receive a title commitment identifying matters affecting the property and requirements that must be satisfied before the title company will issue its policy.

Don't assume every item listed means something is wrong with the property. Some matters may simply be exceptions or standard conditions. Others, however, may require action before closing.

Does a Title Problem Automatically Cancel the Closing?

No.

Discovering a title issue does not automatically mean the buyer and seller have to abandon the transaction.

What happens next depends on:

• The type of defect
• The terms of the purchase contract
• Whether the problem can be corrected
• How long correction may take
• The requirements of the title company
• The lender's requirements, if financing is involved

A relatively simple issue might be resolved before the scheduled closing date.

A complicated ownership dispute could take much longer.

Can a Title Problem Delay Closing?

Yes.

A title issue can delay closing if additional documents, payments, releases, signatures, or legal proceedings are needed before the transaction can safely move forward.

For example, a seller may need to obtain a release of an old lien. An incorrect document may need to be corrected and recorded. An estate issue may require additional documentation.

The important thing is to determine exactly what is preventing the transaction from moving forward rather than assuming every title issue has the same solution.

Who Is Responsible for Fixing the Problem?

That depends on the problem and the transaction.

If the issue involves the seller's ability to convey the title required under the contract, the seller may need to take steps to resolve it before closing.

However, buyers should also pay close attention to unresolved title issues. Purchasing property without understanding an existing lien, ownership claim, or other encumbrance can create significant problems later.

The purchase contract, title commitment, and nature of the defect can all affect the parties' rights and responsibilities.

What if There Is a Lien on the Property?

A lien doesn't necessarily prevent a sale, but it usually needs to be properly addressed.

Some liens can be paid from the seller's proceeds at closing and then released. Others may already have been satisfied but require documentation or a recorded release.

More complicated liens may require additional investigation.

Texas law also contains specific disclosure requirements for certain transactions involving residential property that will remain encumbered by a recorded lien when conveyed.

Before proceeding with a property affected by a lien, both buyers and sellers should understand what the lien is, how much is owed, and what must happen to it as part of the transaction.

What if the Seller's Ownership Is Unclear?

An unclear chain of ownership can be more complicated than an ordinary lien.

Suppose old deeds conflict, an heir claims an interest, or the public records leave uncertainty about who owns part or all of the property.

In some cases, additional deeds or corrective documents may resolve the problem.

In others, a legal proceeding known as a quiet title action may be necessary.

A quiet title action asks a court to resolve competing claims or other uncertainty concerning ownership and establish the parties' rights in the property.

Because litigation takes time, a serious ownership dispute can significantly affect a pending sale.

What Is the Role of Title Insurance?

Title insurance protects against certain covered title problems.

In Texas, an owner's title insurance policy protects the buyer against covered ownership problems that existed before the property was purchased but were unknown at the time of purchase. A lender will also commonly require a separate loan policy protecting the lender's interest.

Title insurance does not mean that every possible title problem is covered.

Policies contain exceptions, exclusions, limitations, and conditions, so buyers should review their title documents rather than assuming every future ownership dispute will automatically be covered.

What Should Buyers Do if a Title Issue Appears?

If you're the buyer, don't rush past a title problem simply because you want to close on time.

Instead:

• Find out exactly what the issue is
• Review the title commitment and relevant documents
• Determine whether the seller is addressing the problem
• Understand whether your lender has additional requirements
• Consider how a delay could affect financing or other deadlines
• Make sure the issue is appropriately resolved before accepting title

A closing date is important, but protecting your ownership rights is more important.

What Should Sellers Do?

Sellers should take title problems seriously as soon as they are identified.

Depending on the issue, you may need to:

• Locate previous closing documents
• Obtain a lien release
• Address unpaid obligations
• Correct or record documents
• Work with heirs or other individuals who may have an interest
• Resolve a dispute over ownership

Responding quickly can help prevent a correctable problem from causing a longer delay.

When Can a Real Estate Attorney Help?

Not every title issue requires litigation, but legal guidance can become particularly valuable when the problem involves competing ownership claims, unresolved liens, questionable deeds, contract rights, or a dispute between the parties.

An attorney can review the transaction and relevant documents, help determine what is creating the title problem, and evaluate potential ways to resolve it.

When an ownership dispute cannot be resolved voluntarily, legal action may sometimes be necessary to clear the title.

Don't Ignore a Title Problem Just to Reach Closing

When a real estate transaction is almost complete, delaying closing can be frustrating.

But unresolved title problems can follow the property long after the closing date.

Buyers should understand what they are acquiring. Sellers should make sure they can transfer the ownership required by their agreement. Taking the time to properly address a title defect can help prevent a closing-day problem from becoming a much larger dispute later.

Dealing With a Title Problem in Houston, Texas?

A title issue doesn't always mean your real estate transaction has to fall apart, but the appropriate solution depends on what is causing the problem.

The Pope Law Firm assists buyers and sellers in Houston with residential real estate transactions, title issues, quiet title actions, and other real estate matters. Our firm can review the circumstances surrounding a title problem and help determine what steps may be needed to move the transaction forward.

If a title issue has appeared before your closing, contact The Pope Law Firm to discuss your situation and available options.