One of the most confusing aspects of closing a real estate transaction involves title and title search. And that got us thinking… We want to help people understand: What is title, and what is the title search process?
Buying or selling a house involves many confusing pieces that feel overwhelming for people outside of the real estate industry. And while it may be frustrating, all of these boxes must be checked before closing.
Below, we expand on both and go over the title search process.
What Is Title
When buying or selling a home, you always need to go through a title process.
But what makes title so important?
Title is a legal document that shows who owns or has legal rights to the property. In other words…
- Does the person selling the home actually own the property?
- Do they have the right to sell?
- Are there any additional owners?
Title searches also benefit the buyer of the property. With title insurance, buyers feel confident knowing that there are no issues preventing them from being the rightful owner.
Title also ensures that nobody else can claim even partial ownership.*
What Is The Title Search Process
So, what is a title search, and what is the process?
A title search is a thorough inquiry of public records to make sure that the seller is the rightful owner. Title searches also verify that there are no liens or judgments on the home that would prevent it from being sold.
It is typically done by a title company.
In some states, only practicing attorneys perform title searches.
What Do You Look For In A Title Search?
Chain of Title:
A chain of title is a historical look of everyone who has ever bought and sold the property. The chain of title for a property ideally dates back to when it was first built and purchased.
This information is typically obtained from public records available in the County Clerk’s or Recorder’s office.
Tax searches determine if the property is up-to-date or if there are any past due or unpaid taxes from previous years.
The purpose of this search is to make sure that there are no unpaid taxes that would create a lien against the property.
Should a buyer purchase a home with any tax liens on the property, the government may have the right to put the home for sale to pay for those taxes at any given time. To give the buyer confidence in purchasing the property, title insurance could protect them against losses of unpaid and overdue taxes from previous sellers. (source)
The purpose of an inspection is to verify the information found from the title search.
An inspector comes out to take a look at the property in question to verify lot size, check to see if there are any easements that may not be on public records and areas of the home that had improvements.
Not only do inspectors check on the property itself, they also look to see if anyone had lived in the dwelling as well. Inspectors do all of this to make sure that the home being purchased is inhabitable. Should the inspector notices anything wrong, they will inform the buyer and it is up to their discretion if they want to move forward and/or negotiate.
An inspection is important to the buyer because the law assumes the buyer is fully aware of all notices shown on public records to the purchasing property.
Judgments and Name Searches:
A judgement is an order awarded by a court to pay money owed to a creditor (source).
The creditor then has the ability to place a lien on the seller’s property until the debt has been paid.
Should a judgement is found, it is important for the seller to settle with the creditor as soon as possible.
A settlement can be done by either negotiation of a payment plan, a settlement of a certain amount, or full-payoff of amount owed. Once settled, the seller would need to provide a release of judgement at closing.
Name searches are important to clear title. This is to make sure that no one of the same or similar spelling of the seller’s name has any judgement or liens that could affect title on the property.
Why You Should Close At a Title Company
A title agent plays one of the most important roles in facilitating a closing sale of a home.
They work with lenders, real estate agents, buyers, sellers and all the other transaction participants to make sure they necessary documents get filled out, signed, and filed correctly (source).
Title agents ensure that the seller is the proper owner of the property and has clear title at the end of the sale through a title search. This helps protect the buyer by ensuring that the home they purchase can’t potentially be placed back on the market because of someone else’s negligence from the government or corporation due to a lien or judgement.
Why Do You Need Title Insurance?
Imagine spending months researching for the perfect house, finally getting the offer acceptance and closing on your dream home…
Only to find out after that there is unpaid property taxes from the previous owner.
The financial burden of this claim for back taxes rests solely with the buyer. The buyer will either pay the outstanding property taxes or risk losing the home to the taxing entity (source).
Title agents do their due-diligence to make sure that the title is clear prior to closing, but there are rare times that something may fall through the cracks. Title insurance protects both buyers and lenders against financial loss from defects of a title to a property.
Unlike other insurance policies, such as cars or homes, that protects your assets from future financial loss, title insurance protects you from past discrepancies from previous owners. Title insurance policy is a one-time premium that lasts with the buyer until they sell the home.
What Does Title Insurance Cover
Basic title insurance policy covers (source):
- Ownership by another party
- Incorrect signatures on documents, as well as forgery and fraud concerning title documents
- Defective recordation (flawed records or record-keeping)
- Restrictive covenants (terms that reduce value or enjoyment), such as unrecorded easements
- Encumbrances or judgments against property, such as outstanding lawsuits or liens