Refinancing a home loan can be a strategic move to reduce monthly payments, secure a lower interest rate, or tap into equity. While the process may seem straightforward, one often overlooked aspect can throw a wrench into the deal—title issues. Title problems can delay, complicate, or even derail a refinancing transaction. Understanding these common title issues in advance can help homeowners navigate the process more smoothly.
What Is a Title in Real Estate?
In real estate, the title refers to the legal right to own, use, and sell a property. A title search is a standard procedure during refinancing that checks for any liens, encumbrances, or legal ownership issues associated with the property. If any discrepancies or claims are found, they must be resolved before the refinance can move forward.
Why Title Matters in Refinancing
When you refinance, the new lender essentially replaces the old one. For this to happen, the lender must ensure that the property’s title is clean—meaning it’s free from any issues that might jeopardize its financial stake. Just as during a home purchase, a title company will perform a title search and issue a title insurance policy to protect the lender’s investment.
Even if you’ve owned your home for years, title issues can arise unexpectedly during refinancing. Let’s explore the most common title problems and how to address them.
1. Unreleased Liens or Mortgages
One of the most frequent title issues is a lien or mortgage that has already been paid off but was never officially released from the property’s records.
Causes:
- The lender failed to file a satisfaction of mortgage.
- A contractor or supplier filed a mechanic’s lien but never removed it after being paid.
- IRS or state tax liens were settled but not released.
Solution:
Request proof of payment and work with the title company to obtain a formal release. In some cases, you may need to contact the creditor or even go to court to have the lien removed.
2. Errors in Public Records
Clerical or filing errors in public records can cause significant delays in refinancing. These might include incorrect names, inaccurate legal descriptions, or recording mistakes.
Causes:
- Misspelled names of owners or previous owners.
- Incorrect property boundaries or parcel numbers.
- Mistaken indexing of recorded documents.
Solution:
The title company usually corrects these issues by filing a correction document. However, verifying the changes may require time and legal documentation.
3. Unknown or Undisclosed Heirs
If the previous owner died without a clear will or an heir was not correctly identified, someone could come forward with a legal claim to the property—even years later.
Causes:
- Unrecorded probate proceedings.
- Missing or estranged family members.
- Fraudulent transfers during inheritance.
Solution:
The issue often requires legal review. Heirs may need to be located, or court documentation may be required to validate ownership and remove potential claims.
4. Divorce and Marital Issues
Suppose the homeowner is divorced or currently going through a divorce. In that case, the spouse may still have legal rights to the property—even if they are not living in the home or on the mortgage.
Causes:
- Quitclaim deeds not appropriately filed.
- Divorce decree not recorded.
- Spouse not removed from the title.
Solution:
All legal documents related to the divorce and property ownership must be submitted and verified. Both spouses may need to sign off on the refinance in some states.
5. Boundary and Survey Disputes
Disagreements over property boundaries can lead to title issues during refinancing. These disputes are often uncovered through a survey or when comparing property records.
Causes:
- Neighboring fences, driveways, or buildings encroach on your property.
- Discrepancies between deed description and actual property lines.
- Easements that were not disclosed.
Solution:
Depending on the situation, a new survey may be required. Legal agreements or corrective deeds may need to be filed to resolve the discrepancy.
6. Judgments or Legal Actions
Outstanding judgments, lawsuits, or bankruptcy filings involving the homeowner can cloud the title. Even if the issue seems unrelated to the home, it may still affect refinancing.
Causes:
- Unpaid court judgments.
- Child support or alimony claims.
- Bankruptcies with unresolved property claims.
Solution:
Judgments typically must be paid or settled before refinancing. Legal counsel might be necessary to resolve more complex cases, especially those involving bankruptcy.
7. Fraud or Forgery
A title issue may occasionally involve a forged document or fraudulent transfer in the property’s history. These are serious issues that can delay or cancel a refinance.
Causes:
- Forged signatures on past deeds or mortgages.
- Identity theft results in false ownership claims.
- Fraudulent notarization of documents.
Solution:
Fraud cases often require court intervention, a quiet title action, or litigation to determine rightful ownership and remove clouded claims.
8. Name Changes or Misspellings
As simple as it may seem, a name discrepancy—such as a spelling mistake, maiden name, or nickname—can create confusion about who legally owns the property.
Causes:
- Marriage or divorce name changes.
- The incorrect name was entered during previous transactions.
- Common names lead to mistaken identity.
Solution:
Documentation such as marriage certificates, name change orders, or affidavits can correct the issue.
9. Unpaid Property Taxes
Delinquent property taxes automatically result in a lien against the property. Refinancing cannot move forward until these taxes are paid in full.
Causes:
- Forgotten or miscalculated tax payments.
- Escrow account errors.
- Supplemental or special assessment tax bills.
Solution:
All taxes must be paid before closing. Lenders often require verification of paid taxes as a condition of loan approval.
10. Previous Owner’s Liens or Claims
Sometimes, a lien or claim from a previous owner is never properly removed, especially in cases of foreclosure, short sales, or inherited property.
Causes:
- Improper closing procedures.
- Incomplete title transfer during the last sale.
- Overlooked liens from prior owners.
Solution:
These issues are usually uncovered during a title search and may require title insurance claims or legal action to resolve.
Final Thoughts
While refinancing can be a great financial move, title issues can create unexpected roadblocks. That’s why title insurance and a thorough title search are critical parts of the process. The good news is that most title issues are resolvable with proper documentation and professional assistance.
Homeowners should be proactive: keep thorough records of all payments, legal documents, and previous transactions. Working with an experienced lender and title company can help identify potential issues early and ensure a smoother path to refinancing success.
Learn more about our comprehensive title insurance services here.
Thank you for reading! If you enjoyed this article and want to explore more content on similar topics, check out our other blogs at Sonic Loans, Sonic Realty, and Sonic Title. We have a wealth of information designed to help you navigate the world of real estate and finance. Happy reading!
Understanding Loan Policy Coverage in Refinancing
Common Title Issues That Surface During Refinancing
Saving Money on Title Insurance During Refinancing
When Do You Need New Title Insurance for a Refinance?
When Do You Need New Title Insurance for a Refinance
Title Insurance During Refinancing: What Changes?
How to Read a Preliminary Title Report
The Role of Title Insurance in Estate Planning
Understanding Title Insurance Endorsements
