Settlement of Title Defect Clause
A Settlement of Title Defect Clause is a provision typically included in real estate purchase agreements that outlines the procedures and responsibilities of the parties if a defect in the title is discovered after the contract is signed but before the closing of the property transaction.
This clause serves to protect buyers and sellers by establishing how title defects will be addressed. A title defect may include issues such as liens, easements, or claims by third parties that could affect ownership rights. The clause typically specifies the following:
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Notification Requirements: It mandates that the party discovering the defect must notify the other party within a specific timeframe.
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Resolution Process: The clause outlines how the defect will be resolved, which may include the seller rectifying the issue, negotiating a settlement, or offering a title insurance policy to cover potential losses.
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Closing Conditions: It may stipulate that the closing of the sale will not proceed until the title defect is resolved to the satisfaction of both parties.
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Remedies: The clause may also provide remedies for the buyer if the seller fails to resolve the defect adequately, such as the right to withdraw from the sale or seek damages.
For example, if a buyer finds out that a previously unknown lien exists against the property, the Settlement of Title Defect Clause would dictate that the seller is responsible for clearing the lien before the transaction can be completed. If the seller cannot clear the lien, the buyer may have the option to back out of the transaction without penalty, depending on the specific terms outlined in the clause.
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