Every seller of real estate, be it a residential or commercial transaction, receives a “seller’s affidavit” for their signature. While the seller’s affidavit is only one among the many papers provided by the lender and title company, it plays an important role in both the seller receiving their funds at the time of closing, and the buyer receiving a clean title insurance policy.
A seller’s affidavit contains many important statements that assist the title company in delivering a clean title insurance policy to the buyer. An example of assertions that may be included in the seller’s affidavit are:
- He, she, or it is in good standing and authorized to sign documents,
- No one has disputed their ownership of the property,
- There are no tenants on the property or if there are, they have no rights to purchase the property,
- There are no judgments or liens on the property,
- The seller is not in bankruptcy,
- Real estate taxes are paid and current,
- No work, services, or labor has recently been performed on the property or contracts signed to do so, and
- There has been no recent financing secured by the property.
One of the most important elements of the seller’s affidavit is the indemnification of the title company during the period between documents being verified and recorded by the Clerk (the “thru date”), and the recordation of the Deed. This intermission is known as the “gap” in title. The gap can be as short as a day, or longer than a month, and varies from county to county.
During the gap, the title company cannot see what documents have been presented for recordation between the thru date and the date of recordation of the documents from the current closing. The seller affidavit will usually contain an indemnification from the seller to the title company stating that the seller has performed no act that would impact title during this gap. If the seller signs the affidavit and thereby indemnifies the title company for the gap period, then the title company can disburse proceeds before the land records are current with the recordation of the new Deed. Every title company must address every transaction’s gap period during closing.
Occasionally, the seller’s affidavit may contain additional language to address various purposes. For example, the seller’s social security number or identification number may be included so the title company can file the proper 1099 forms relating to the sale. In some cases, a clause for “FIRPTA” certification is included in which the seller states that they are either an American citizen or company. Without the FIRPTA language, the title company would have to withhold a significant portion of the proceeds from the Seller for federal taxes.
Unless the realtor or title company discusses the contents of the seller’s affidavit with the seller before closing, then the seller will see it for the first and only time at the closing table. If the seller chooses not to sign the seller’s affidavit, the title company will need to investigate whether there are any issues that prevent the seller from transferring clear title to the buyer; a process that could delay closing or prevent it entirely.
If the seller’s affidavit stays unsigned, the seller will have to wait a long time to receive their proceeds. The only other option for the title company is to hold the seller’s proceeds, record the documents, and wait for the updated land records while the title company researches every issue set forth in the seller affidavit. Unfortunately, this option is not always available to the title company as the seller may be paying off loans and leaving no proceeds to hold the seller accountable. Alternatively, the seller may be immediately moving out of state, leaving the buyer no recourse in the event title issues that arise, during the gap period, need to be cleaned up.
While the seller’s affidavit only protects the title company, the buyer or lender depend on the title company to deliver a new title insurance policy without exceptions for the matters outlined in the seller’s affidavit. If the title company cannot deliver a clean title insurance policy, no buyer or lender should buy or loan money to the seller as they are now accepting the risk that there are recent matters affecting title for which the title company cannot insure them.
It is rare for sellers to refuse to sign a seller’s affidavit and in that instance, other parties to such a transaction should proceed cautiously, if at all.