No one likes to be in debt at any point, but just about everyone has credit cards, loans, or mortgages to worry about. If you are careful with your finances and make sure to pay your debts promptly, you probably have nothing to worry about. However, anyone with an unpaid debt could find themselves in trouble when it comes time for them to sell their home.

What is the Issue With Unpaid Debt?

Aside from the obvious issues with having debt over your head, any unpaid debt you have could interfere with your real estate sale by impinging on clear title. This is an issue because most real estate contracts require guaranteeing clear title to a buyer before the sale can go through. If it is later found that there is a problem with clear title, you could face costly litigation later on.

What Does it Mean to Have a Clear Title?

“Clear title” refers to having uncontested control over a particular property, without any other property interest interfering with it. When someone else has an interest in the property, their rights are potentially infringed if the property is sold without their knowledge or consent. In addition, a buyer of a property may find their own property rights are infringed upon when someone else suddenly appears claiming they have a previously unknown property right.

Clear title in real estate can be impinged in a number of ways, including:

  • Having an outstanding mortgage on the property.
  • Having an undeclared easement or covenant.
  • Using the property as collateral to secure a debt.
  • Having a lien placed on the property by a creditor.
  • Someone else claiming they are the real owners of the property.

How Does an Unpaid Debt Impact Clear Title?

When you have an unpaid debt attached to a piece of real estate, such as from a mortgage, security, or lien, whoever holds that debt has an interest in the property. After all, if you default on your debt, whoever holds that debt will want to be able to foreclose on your property to recover their lost income. This can become potentially problematic if you have already sold the property to someone else without first dealing with this unpaid debt.

How Do You Deal With an Unpaid Debt?

The easiest way to deal with an unpaid debt that could impact your property’s title is to pay it off, of course. If that is not possible, and if you cannot resolve the debt through other legal means, you should at least disclose the existence of this potential issue to your buyer, to ensure they are not caught unaware by the problem. In some cases, such as with a mortgage, you could get an agreement from your buyer to assume the cost of the debt in exchange for a discount on the selling price of the property.

However you deal with the issue of clear title, you should make sure it is resolved before you close on the sale. Otherwise, you could face substantial legal trouble from both your creditor and your buyer. This is why you should consult with an attorney on any real estate deal you are involved with, who can help you discover any issues with your property’s title and work with you to correct any problems that arise.

If you are considering putting your home on the market or are attending to another matter that falls within real estate law, you should contact an attorney as soon as possible. David J. Lorber & Associates, PLLC, in Setauket, New York, offers comprehensive real estate representation. Real estate is a complicated area of law, but an informed legal counselor can provide valuable guidance. Call us at (631) 750-0900 or contact us online to schedule your free initial consultation today.

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