Registered interest

Encumbrances to marketable titles in real estate

Posted on by Behdad Hosseini

real-estate-deed

Any purchaser of real estate should not only receive title to the property, but the title should be what is known as a marketable. A marketable property title is evidence of ownership without any third-party claims or encumbrances to that ownership that could affect the property’s fair-market price or result in future litigation.

It is the duty of a real-estate lawyer to ensure that a title is without such encumbrances by searching titles at the land registry office or engaging in searches for defects that don’t appear on the title. In the province of Ontario, most properties have a unique property identification number that allows for the searching and tracking of properties and titles at the land registry office.

The following is a list of some common encumbrances that prevent a title from being marketable:

Mortgage

A previous property owner might have used the property to secure a loan, which is a mortgage — also referred to as a charge. The mortgage lender has rights to the property upon default on the loan that would still be in effect when the property is being sold at a later time.

Lien

Similar to a mortgage, a lien is placed on a property when a loan secured by the property is made. If the property owner defaults on loan payments, the lender (or lien holder) has the right to seize the property and sell it in order to recoup any money lost. Such liens may still be in effect on a property title.

Easement

A right someone else has to use a property without owning it. Utility companies often have easements on properties to allow for the instalment of electric or telephone lines. Other types of easements or property-usage rights may also be associated with a title and should be researched thoroughly before purchase.

It should be noted that easements are sometimes found on non-title documents.

For example, utility companies in rural areas can have easements or rights to properties that are granted by local authorities and are not found on titles. Lawyers should make sure to find out if such non-title easements exist for a property.

Right of way

A right of way is a type of easement; one that gives another party access to a property for transportation purposes. An easement would allow another party to construct a road, highway, footpath, or some other mode of transport on the property.

The previous existence of a road or path on the property might mean that the right of way is still attached to the title, and could give a third party the right to construct a road or pathway on the property at some future point in time.

Restrictive covenant

A restriction placed on how a property can be used. Restrictive covenants can include measures such as height specifications for a fence, or type of residence to be built on a property. Restrictive covenants are often used in subdivisions to protect property values.

Writ of execution

A court order allowing a creditor to have a sheriff seize the assets/property of a debtor in order to fulfill an unpaid judgement. Writs of execution are a part of Ontario’s writs system and can also be called writs of seizure and sale or writs of seizure and sale of land.

Certificate of pending litigation

If an interest in property is in question and part of a lawsuit, a party in that lawsuit can have a certificate of pending litigation issued, which not only notifies prospective property buyers of the ongoing litigation, but essentially restricts all transactions involving the property until the litigation is resolved.

Agreement of purchase and sale

A property may have already been sold to someone else, in which case an agreement of purchase and sale will have been signed by another buyer and the seller. Any new buyer would have to receive title from the new owner, not the previous seller.

Registered interest

A land registration system exists in Ontario in which any documents affecting a property’s title are recorded, and include any interests attached to the title, including notices of ownership, transfers of ownership, mortgages and liens. Just about anything can be registered on a property’s title, and it’s the lawyer’s responsibility and duty to ensure no registered interest can affect the title’s marketability.

In summary, a real-estate lawyer should ensure that a title to a purchased property is as clean as possible; that it’s marketable. This involves searches of the titles themselves, as well as searches for other documentation that can adversely affect the status of a title.


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