perfect? marketable? insurable?

Here's an e-mail exchange that might help understand the issues faced when folks try to figure out the difference.

Dear Ms. Cipa,

While researching a title insurance matter on the internet I made my way to http://titleinsurancetalk.blogspot.com/ where I read some of your postings. I have long been searching for someone as knowledgeable and erudite as you on title matters.

I am writing to ask for your help in locating a title industry person who can give an authoritative analysis the following scenario:

Buyer bought a house in California. The Title Company that issued Buyer’s title policy paid off an IRS tax lien at closing, but a release of lien was not recorded. Buyer discovers the lien while attempting to negotiate a loan modification and asks for it to be removed immediately based on unmarketability of title.

Title Company expects that it may take months or years to cause IRS to record the release of lien due to IRS bureaucracy. Title Company insists that Buyer accept Title Company’s offer to “insure around” the IRS lien.

Does Buyer have to accept Title Company’s offer to “insure around” the IRS tax lien? Does a prospective cash buyer or an institutional refi lender have to accept it ?

Is there any procedure available to Title Company whereby a bond or a cash surety can be posted to get the IRS to issue a release immediately?

Hi, Robert. Please feel free to call me Diane. In PA, at least, getting a release on an IRS lien isn't that tough or time consuming. I would first demand evidence that the lien was paid in full. Ask the title agent for a copy of the cancelled check. With the cancelled check and the executed HUD in hand, you have good evidence that the item was paid and just not satisfied. In that case, it would be reasonable for the buyer and their lender to accept an indemnification from the new title insurer. This is common procedure for paid but unsatisfied liens and mortgages. The title company who issues the indemnification still has an obligation to follow up and pursue the satisfaction, but this will at least allow this transaction to move forward with all parties protected.

Hope that helps!

Diane, Thank you for responding. The thing that is different about this case is that the Buyer wants to resell the property to a Private Party by the end of the month for cash subject to the mortgage that Buyer obtained when Buyer bought the property. However, the Private Party will not accept the notion of insuring around the tax lien. Can the title company be compelled to post a bond with the IRS to obtain an immediate release of the lien?

In most markets the definition of marketability is title that would be insured by a reputable title insurance company at regular rates. The insured owner can file a claim but it's not certain that would get him any relief. When a buyer acts outside of the norm and demands perfect title, rather than marketable or insurable title, the seller has to decide if they are willing to foot the bill to attain perfection. Perfection may not be offered by title insurance. Reason generally prevails.

A middle ground might be holding money in escrow pending satisfaction. That may be the price the seller is willing to pay - not having their proceeds while the issue is worked out.

In the meantime, I wouldn't do anything without first making certain the lien was actually paid in full and isn't sitting there like a ticking time bomb.

Remember, I am a blogging PA title agent and not an attorney. These are just my thoughts for whatever they are worth. The insured owner should be consulting an attorney. ;)

O.K. That helps a lot. I see the difference between marketable and perfect title. Thank you.

You're welcome.