Working with Title Companies That Have Never Closed a Novation

Working with a title company that has never closed a novation requires careful due diligence, clear documentation, and often extra steps to protect your transaction. A novation is a legal substitution of a new party, new obligation, or new contract for an existing one, with the consent of all involved parties. Title companies that lack experience closing novations may not fully understand the document requirements, lien release procedures, or potential title defects that can arise, so proactive communication and preparation are essential to avoid delays and legal complications.

TL;DR

• Inexperienced title companies may misunderstand novation requirements, leading to delays, incomplete documentation, or missed title issues; request references, ask detailed questions about their process, and provide a written novation summary upfront.

• You will likely need to supply detailed documentation (original contract, novation agreement, lien release letters, consent forms from all parties) and may need to hire a real estate attorney to review the title company's work.

• Build extra time into your closing schedule, establish a single point of contact, confirm their title insurance underwriter will insure a novated transaction, and plan for potential title defects that the title company may not catch.

Understanding What Novation Means for Title Work

A novation differs from a simple assignment or assumption. In an assignment, Party A transfers their interest to Party B, and Party A usually remains liable if something goes wrong. In a novation, the original party (Party A) is completely released, and a new party (Party C) steps in as if they were in the original contract from the start. All parties must agree, and the original obligation is extinguished and replaced by a new one.

Title companies close real estate transactions every day, but many primarily handle straightforward sales where one owner conveys to one buyer. A novation involves layers: the original contract, the new party, lien releases from the original obligor, consent documents, and often complex underwriting questions about whether the new party is truly substituted and liable. If your title company has never done this before, they may not anticipate title defects or document issues until late in the process.

Identifying Whether Your Title Company Is Actually Inexperienced

Start by asking direct questions early: "Have you closed a novation transaction before? How many? Can you walk me through your process?" Listen for specific, confident answers versus vague ones. Ask for references from prior novation clients. If the underwriter or closing officer hesitates, says they'll "figure it out," or seems to confuse novation with assignment, that is a red flag.

You can also call the underwriter directly (most title companies are agents for larger underwriters like First American, Chicago Title, or Stewart). Ask the underwriter whether they have guidelines for novation closing and whether the policy will insure the novated transaction. Some underwriters have published requirements; others do not. If the title company has never dealt with their own underwriter's novation requirements, that is a procedural problem waiting to happen.

None of this means you must switch companies, but an inexperienced title company signals that you need to take on more of the coordination role yourself.

Preparing Your Documentation Package

Do not expect an inexperienced title company to know exactly what documents they need. Prepare a comprehensive package and hand it to them upfront. Include:

• The original contract (fully executed).

• The novation agreement (fully executed by all parties: original obligor, new party, obligee).

• Written consent from the original obligee (lender, if applicable) to the novation.

• A lien release or waiver from the original obligor, confirming they have no further liability and releasing any liens they may have placed on the property.

• Proof of identity and legal capacity of the new party (driver's license, corporate documents if applicable).

• A cover letter or summary explaining the novation sequence and identifying each party's role.

• Any amendments to the original contract that occurred before the novation.

• Title commitment on the subject property (so defects are identified early).

Include a brief one-page summary: "Party A and Party B agreed to Party C substituting for Party B under the original contract dated [date]. All parties consented [date]. Party B released all claims [date]. Party C is now solely liable." This prevents misunderstandings about what is actually happening.

Clarifying the Closing Process with the Title Company

Schedule a call with the closing officer (not via email first) and walk through the process step by step. Ask these specific questions:

• Who signs the deed: the original owner to the new party, or does it require a different document structure?

• What closing disclosures or settlement statements do you need, and who are the parties?

• How do you confirm the original obligor is truly released and has no further interest?

• What title exceptions will the policy carry, and will the underwriter insure a novated transaction?

• What title defects have you discovered in the commitment, and how will they be resolved?

• Do you need estoppel letters, subordination agreements, or lender consent documents?

• What is your timeline, and when do you need each document from me?

Ask for a written checklist. If they cannot provide one, create your own and send it to them, asking them to confirm what is accurate and what they would add.

Managing Title Insurance and Underwriter Requirements

A novation can complicate title insurance. The title company must obtain a title commitment, identify all liens and encumbrances against the property, and ensure those liens either get released or subordinated properly. Additionally, the underwriter must be satisfied that the new party is truly stepping into the original party's shoes, with full rights and full liability.

Inexperienced title companies sometimes fail to flag this issue with the underwriter early enough. By the time the underwriter raises concerns, it is days before closing and too late to fix them easily. Ask the title company to send a copy of the title commitment to the underwriter along with the novation documents and request written underwriter approval of the closing structure before you are locked into a closing date.

Confirm whether the policy will show the new party as the obligor or buyer. Some underwriters require the original obligor to remain on title until post-closing, which complicates escrow and increases risk. Get that clarity in writing.

Planning for Title Defects and Liens

When the original obligor is released from the contract, any liens they placed on the property must be released as well. If they fail to sign a lien release, or if a prior lien from a bank or contractor attaches to the property, the title company must resolve it before closing.

An inexperienced title company may not aggressively pursue lien releases, may not search for tax liens or judgment liens against the original obligor, or may not understand that those liens can cloud title. Request that the title company conduct a thorough UCC search, judgment lien search, and tax lien search against both the original obligor and the property. Make sure any liens discovered are resolved in writing before the closing date.

Building Extra Time Into the Schedule

An inexperienced title company will likely need more back-and-forth communication, may discover issues late, and may need to consult with the underwriter or an attorney. Plan for an extended timeline. If a typical real estate closing takes 30-45 days, budget an extra 14-21 days for a novation with a less experienced title company.

Set firm internal deadlines for the title company that are 5-7 days ahead of your actual closing date. This gives them a buffer to handle problems without pushing back your closing. Communicate this timeline in writing at the start and confirm receipt.

Considering When to Hire a Real Estate Attorney

If the title company has never closed a novation and does not have a detailed process, seriously consider hiring a real estate attorney to review the closing documents before closing and to attend the closing itself. An attorney can spot issues the title company may miss: improper novation language, ambiguous release language, missing consents, or title insurance exceptions that should not be there.

The attorney cost (typically 500 to 2,000 dollars, depending on jurisdiction and complexity) is cheap insurance against a closing that unwinds, a title claim later, or a dispute over who is actually liable under the contract.

Establishing Clear Communication Protocols

Assign a single point of contact at the title company and confirm they will be your exclusive contact. Too many cooks create confusion. Email them a list of all parties involved in the novation (original obligor, new obligor, obligee, lender, agent, attorney, yourself) with phone numbers and email addresses. Confirm how often they will update you: weekly, or when milestones are reached.

Create a shared document (Google Sheet or similar) listing all outstanding items: documents needed, title exceptions to resolve, lien releases pending, underwriter approvals pending, and dates. Share it with the title company and update it weekly. This creates transparency and prevents items from falling through the cracks.

Red Flags During the Process

Watch for these warning signs:

• The title company says they will "handle" the lien release but cannot explain how or from whom.

• The underwriter raises questions about the novation but the title company does not have clear answers.

• The title commitment shows liens from the original obligor and there is no plan to release them.

• The closing officer cannot explain what the closing statement will show or who is paying what.

• Closing is rescheduled multiple times because documents are not ready.

• The title company sends documents for signature without a clear cover letter explaining what each one does.

If you see any of these, escalate immediately to the title company manager or underwriter.

Frequently Asked Questions

Can a title company refuse to close a novation?

Yes. If the title company or its underwriter is uncomfortable with the structure of the novation, uncomfortable with the new party's creditworthiness, or if there are unresolved title defects, they can decline to close. This is rare but possible. To minimize this risk, provide complete documentation upfront, involve the underwriter early, and confirm the underwriter will support the closing before you sign a closing date agreement.

Who pays the title company's fees when a novation is closed?

This depends on the contract and local custom. In some cases, the original obligor pays because they are walking away. In others, the new obligor pays as the new buyer. Clarify this in the novation agreement itself so there is no dispute at closing. The title company will include their fees on the closing statement, and it should be clear which party is responsible.

What happens if the title company misses a lien or title defect in a novation?

If the title company and its underwriter issue a title policy, the policy insures against most defects that were not listed as exceptions. However, if a lien was discoverable through standard searching and the title company simply failed to search properly, the claim may be disputed. This is another reason to hire an attorney: they can ensure the title search was thorough and hold the title company accountable if it was not.

Should the new party do a walk-through inspection before closing a novation?

Yes, absolutely. A novation does not change the basic due diligence required on a property purchase. The new party should inspect the property, confirm no damage has occurred since the original contract was signed, and verify that the property matches the original description and condition. The title company will handle title and legal closing, but the new party is responsible for the physical and financial condition of the property.

Sources

• U.S. Census Bureau, QuickFacts, housing, ownership, and local market context.

• U.S. Department of Housing and Urban Development, official guidance on buying, financing, and distressed property.

• GoliathData real-estate records, distressed-property and market data compiled from public records.