Written by attorney John B. Stutt

As a real estate buyer, are you bearing the risk that a lien has not been discovered before closing?

Generally, contracts to buy property require the seller to provide to the buyer a commitment for title insurance which provides research as to loans and liens up to 15 days before closing.

The standard exception in the title insurance commitment excludes defects, liens and encumbrances, adverse claims and other matters that occur after the title insurance commitment is issued and before the buyer acquires the land.

Without further endorsement, there will be no coverage for this area of risk. The standard exception is referred to as "gap exception."

The risks to the buyer are that a judgment may be imposed against the seller, a lien on the property may not be picked up by the title insurance company, a mortgage that has been recorded may not be picked up by the title insurance company, and discovery of home equity loans created during the gap, Federal tax liens and state tax warrants created during the gap which are not covered by the title insurance commitment.

A solution to this problem is to buy title gap insurance. This can be negotiated between the seller and buyer and seller often agrees to pay for this insurance. Typically, the conditions to buy such insurance include:

(1) notice to the title company that the closing will occur 72 hours before closing;

(2) that a warranty deed be executed, not a quitclaim deed;

(3) that the deed be actually delivered to the title company within 72 hours of the closing;

(4) that the seller sign an affidavit that he has not filed bankruptcy, that there is no pending lawsuit against him, that there is no lien filed against the property within the gap period and that there are no other conveyances that relate to the land during the gap period.

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