When drafting a sales contract, the seller needs to determine whether he/she will sell the property with a full title guarantee, limited title guarantee or refuse any title guarantee. When a seller sells with full title guarantee on a contract, the buyer will have the benefit of a full range of promises that are listed by the Law of Property Act of 1994.
A title guarantee is also referred to as title insurance. Title insurance is a policy issued by a Utah title guarantee company promises that the title of real property is free from any claims, liens or other encumbrances and is listed in the name of the title owner. A title guarantee will also show that the owner has the right to sell or transfer the property to someone else.
A title insurance company will pay the damages to the new title holder, secured lender or take steps to correct the problem if there are questions at a later date. Some questions that could come up include boundary descriptions that are misleading or wrong.
Title guarantee insurance in Utah takes care of problems that do not show up during the title search, missed by the examiner, or errors in public records. Title insurance, however, does not cover problems that happen after you purchase the property and it is transferred to your name. Title insurance often excludes problems with easements, mineral and air rights, and liens.
You pay your title insurance in full using a one-time fee that is part of the closing costs. The buyer makes payment unless your contract with the seller says something different.
Provisions in the Law of Property Ace of 1994 includes:
- The deposing party has the right to dispose of the property (section 2(1)(1)). Before any land is disposed, the seller must have the right to sell the property, transfer part of the land or grant a lease. It is an excellent idea to have Utah title company do a title search at this point.
- The disposing party will do all it reasonably can to give the title it purports to give, at its own cost (section 2(1)(b) and (2)). When selling a property and if the seller is registered at the Land Registry as a proprietor of the property with title absolute, it is probable that there will not be a problem in transferring the title. If a title is not successfully available; the seller promises to assist in perfecting the title at a cost to the seller.
- If the property being disposed of is registered, there is a presumption that the whole of the property in the registered title is being disposed of (section 2(3)). Check with Utah title insurance companies to ensure that the seller is disposing of the entire interest in the property.
- If the property being disposed of is not registered, there is a presumption that the interest being disposed of is freehold. If it is clear that the interest is leasehold, it is presumed that the interest is the unexpired residue of the term of the lease (section 2(3)). Unregistered land is not a likely situation. Land is seldom not registered at the Land Registry. However, if this is the case, the seller must write in the contract that the property is leasehold and not freehold.
- The disposal is free from all charges, encumbrances and adverse rights, except any charges, encumbrances or adverse right about which the seller does not know and could not reasonably be expected to know, that is, free from all known encumbrances (section 3(1)). Impediments are any interests, rights or burdens that adversely affect the ability to transfer property. This section implies that the land is free from all problems other than those the seller does not know about and could not possibly know. Contact a Utah title guarantee company to make sure any possible encumbrances to the title are cleared up before the sale.
- Where the full title guarantee covenant is used in respect of the sale of leasehold property, additional covenants are implied: that the lease is continuing, and the seller has complied with its terms. In other words, the lease that is being transferred will stay with the new owner. Additionally, this means that the contract between the seller and the leaseholder has not been broken and there is nothing that would cause the lease to be forfeited. These terms are particularly important when farmland is involved in a sale.
If you are seeking a mortgage or loan on the property, the offer must be verified to ensure what type of guarantee the Lender requires. Usually, a full guarantee showing that the property is free from any encumbrances is needed to conclude a sale. You must have an experienced Utah title guarantee company on your side during the transaction. Utah Title will make sure the title is checked thoroughly, and the provisions satisfy your lender.
(The information in this blog represents a brief narrative of what the Law of Property Act of 1994 represents. If you wish to read the full act, and it is long, contact Utah Title. They will be more than happy to help you.)