You fell in love with a charming two-bedroom and its swanky kitchen. After negotiating with gusto, the seller finally accepted your offer. The seller happens to be a warm fellow who assured you that he has a clean title. You can’t wait to own this home but here’s the thing with buying properties — you should always cover your bases. Hence, the need for a title search.
Even if you are talking to an upstanding agent and an honest seller, there could still be title issues. The other party may have misrepresented the status of the property. Sometimes, there are liens or hidden claims against the property that the owner has no knowledge of.
To avoid entering a contract blindly, you need to do a title search. If you’re applying for a mortgage, you have no choice anyway since the lender will request one.
What Is A Title Search?
Most of the time, buyers request a title search after the seller accepts their offer. A title search is always a must before you can close on a home.
What exactly is a title search?
A title search is a process of looking into public records to determine the rightful owner of the property. By extension, it helps you determine if the seller has to right to sell it. This examination also looks for issues with the title and outstanding claims against the property such as back taxes and liens. All these findings are summarized in a document known as the title report.
Why Do You Need A Property Title Search?
Conducting a title search is necessary not just for buyers but also for sellers and lenders. Here’s why.
All Mortgage Lenders Require A Title Search
So the seller accepted the offer and perhaps you’ve signed the real estate purchase agreement. Now, it’s time to move on to securing your mortgage, that is if you need one.
If you apply for a mortgage loan to finance your property purchase, mortgage lenders will require you to purchase title insurance. But to get approved for title insurance, the title company needs to perform a full title search.
Take note that your title insurance pays for liens and encumbrances that come up after closing. So, it makes sense for the insurance provider to make sure that there are no major issues with the title before approving your insurance application.
The title search focuses on encumbrances. Encumbrances refer to liabilities owed by the current or the former owner of the property. These encumbrances may include back taxes, liens or unpaid mortgages. Parties making a claim against the property should have filed it with the recorder’s office or courthouse. Hence, it should be attached to a property’s title.
When you sign the property deed and become the new owner of a property, you also become responsible for all the liabilities attached to the title.
Note: Deed and title mean different things. The property deed refers to the document that transfers the ownership of the property. Hence it is signed by both the buyer and the seller. During the closing, the deed should be recorded with the courthouse or the county assessor’s office.
Sellers Who Want to Make Sure They Have a Marketable Title
Sellers want to make sure that they have a marketable title before listing the property. Putting a property up for sale costs money. If your title turns out to be unmarketable, you’d be wasting your time and effort.
A marketable title means that the title is free from defects that may challenge the rights of the title owner and may lead to a lawsuit. Defects can either be encumbrances or questionable property ownership. Wild deeds, which refers to the deed executed when someone bought the property but did not officially record the title, may also cause issues. There are also cases where the land violates the zoning law and renders the title unmarketable.
Buyer Who Are Not Willing To Unknowingly Take on Expensive Issues
Buyers who take out a mortgage loan are required to do a property title search but this step is also a MUST for cash buyers. You need to know if there are liens, child support, loans, and judgments against the property which were not disclosed to you BEFORE closing. After you close on a home, the obligation of the former owner passes on to you and it will be more difficult to settle the issue.
When you buy a property, you want to have a clear understanding of its condition. Without a title search, you won’t be assured of the real status of a property
When Is The Title Search Done When Buying A House?
You can do a title search anytime. Some homeowners do a title search when they plan to refinance their homes. Potential buyers may also do the same for a property they like. However, the title search usually happens after the seller accepts your offer on the property and you sign the purchase agreement.
Lenders request for a preliminary report while you’re in escrow. Being in escrow means that you have already many your earnest money deposit as a show of good faith about your intention to buy the property. You will have a higher level of assurance that the property has no issues after a title search.
Who Performs The Property Title Search?
Anyone can perform the title search but there are professionals who are experts in this field. Title searchers know the proper way to conduct a title search. These professionals, who may also be referred to as abstractors or examiners, have access to documents that are not available online.
Can You Do A Title Search By Yourself?
Yes, there are professionals who conduct the title search, but you can also do it by yourself. The first step is to look for the legal description of the property. You can find the legal description on the deed of the property.
Once you have that information, you can do an online title search. Many states allow you to conduct a title search online by visiting the county assessor website. If you can’t find the property online, don’t worry – some of these lists may be incomplete. In this case, you may visit either the Examiner of Titles in your district court or the Recorder’s Office.
Someone from the concerned office should help you pull up a tract card in one of the computer terminals. This tract card should reveal the chain of title or the history of property transfers involving the property.
The chain of title can reveal various clues on issues with the property. For instance, there was a deed to transfer the title from Bill to Sally. However, the next deed on file is for the title transfer from Jake to Lisa. This break in the chain of title is a major red flag.
Looking into the chain of title is actually one of the things that a title searcher does first. With the effort it takes to peruse tons of documents, it is usually more efficient to request a professional title search. Unless you have some background in the process, you may miss liens placed against the property and pending judgments against the seller.
Moreover, the agencies where you do your research may not offer legal advice.
How To Do A Title Search
Title companies look into public records. They also do a tax search to see if there are unpaid federal and state tax liabilities against the property. And it doesn’t end there.
Searchers also look into the following:
- Unpaid mortgages
- Court dockets to find bankruptcy records as well as existing and pending financial judgments made against the property
- Death certificates and estate filings to see how ownership transferred after the death of the original owner
- Domestic relations to see if there is a lien on the property for an unpaid child or spousal support
- Marriage Licenses and Divorce Decrees to find name changes which may affect the ownership of a marital property
Title companies compile all their findings and issue a preliminary title report. The seller, buyer, lender, real estate attorney, and the real estate agent will have a copy of this title report.
Even if there are issues with the title, the buyer may still proceed with the sale. However, these issues need to addressed first.
If there is a title search contingency and the seller doesn’t have a clear title to the property, the buyer may back out and get his or her earnest money back.
What Are The Most Common Title Issues?
When you hire a general contractor to make property improvements, your service provider typically files a lien before starting the job. This is standard practice to ensure that the contractor gets paid. After completing the project and receiving their payment, the contractor should release the lien. Most of these liens will expire after a certain date but some have an indefinite life span.
When the property owner became bankrupt or married someone who filed for bankruptcy, there are potential title issues. The bankruptcy case needs to be discharged. There are also instances where the seller needs to submit a court petition releasing the property from the bankruptcy process.
Delinquent Child Support
Sometimes divorced spouses forget to remove the lien for child support even if the debt has been cleared a long time ago. This may show up in the title search and become an issue that prevents the sale unless a surviving parent signs a “release of judgment” to attest that the amount owed has been paid.
Unpaid back taxes and delinquent spousal support are also common. It may take weeks to solve these title issues. It usually takes longer to solve title problems for properties inherited from trust issues if a co-owner or beneficiary cannot be found.
The title company does most of the legwork in removing these issues to make sure you have a clear title. Sometimes, you won’t even be aware that the company took care of some title issues prior to closing.
There are also cases where the company asks you to file a quitclaim deed to clear up the title and remove an heir, a spouse or a co-owner. You may also have to file a release of judgment or lien to get rid of liens for spousal or child support and to remove encumbrance for a paid mortgage.
How Does A Title Report Look Like?
The title report summarizes all the information searchers found in one document. This report includes the following components.
- Property Information. This reveals the owner’s name on county reports, the property address and the county.
- Legal Description. This description should be for the correct property and it should match other court documents.
- Deed Information. This specifies the current deed holder and the type of deed issued by the former owner. The name of the person who transferred ownership to the current owner should also be reported in this section.
- Mortgage Liens. This section lists mortgage loans taken against the property. It also lists details such as the origination date, the amount, and the borrower.
- Encumbrances and Comments. This section details all other encumbrances other than mortgage liens, It may include mechanic liens, judgments which may lead to encumbrance, litigation, and foreclosure.
- Property Tax Information. This part covers property tax details. It indicates if the owner pays the tax by installment or annually. It will also indicate if the owner owes back taxes.
Check out this sample title report to know how the document looks like.
A Title Search Doesn’t Uncover All Defects
While title companies exert significant effort to find all title defects, some issues may not be on the record. These title issues include legal description errors, deed executed due to fraud or duress, forgeries, claims against a property owner who used a fictitious name or “alias” and many others. This is where the title insurance comes in.
What Is Title Insurance?
Title insurance can protect you from title problems that may come up after closing. You only have to pay the title insurance premium once, but it will be effective as long as you are the property owner.
Lender’s Title Insurance
When you take a mortgage to finance the property purchase, you typically have to get a lender’s title insurance. This type of insurance protects the lender from any loss which can arise from an issue with the title. The lender’s title insurance should cover the full amount of the loan. From the name itself, this coverage is for the benefit of the lender which is why you are always required to get title insurance when you get a mortgage.
Owner’s Title Insurance
Concerned buyers who want to protect their ownership of the property should consider paying for the owner’s title insurance. Most owners’ title insurance companies offer three types of coverage which are as follows:
- Standard policy. This protects buyers from issues like use restrictions, undisclosed easements, prior liens, forgery, impersonation, improperly recorded deeds and lack of right of access.
- Extended coverage. This coverage includes issues in the standard policy as well as claims for adverse possession and land issues such as incorrect surveys, subdivision laws, and zoning issues.
- Premium policy. This has the widest coverage and usually includes forgeries made after the coverage started, construction and improvements made by neighbors on the insured land. It also covers the full dimensions and location of the insured property.
An owner’s title insurance spares you from spending money on defending your rights to the property. It will also help you recover losses because of property issues. Owner’s title insurance is optional, but it is highly recommended.
With all these benefits, you may wonder about the cost of getting title insurance.
Title insurance can cost you around 1% of the purchase price. Insurance premiums may vary depending on the insurance company and the state where you live.
How Much Does A Property Title Search Cost?
A basic title search cost can be anywhere from $75 to $150. Prices vary by state based on your loan amount and the property’s purchase price. However, complete Ownership and Encumbrance report can cost as much as $1K. This fee often includes the title insurance policy, and this is included in the closing fees.
Exercise Due Diligence In Every Property Purchase
Almost all property purchases involve a title search. In fact, doing the property search yourself is better than nothing. However, if you’re paying a significant price for a new property, hiring a title searcher is highly recommended.
Your title report dictates the next step in your home buying process. If the title search uncovers major issues with your dream home, you may have to let the property go and move on. Yes, you’ll pass up the chance of owning that home but you also dodged a bullet which would have cost you more money down the road.