Are you a first-time homebuyer, a seasoned real estate investor, or simply someone interested in understanding the complexities of a real estate transaction? One crucial step that you can’t afford to overlook is the title search process. Here’s a guide to help you understand what happens with a title search.
If you’re involved in buying or selling property, understanding the title search process is essential. This guide will walk you through each step of a title search, from initial research to final outcomes, offering valuable insights into why each step matters. Read on to become a title search expert!
What Is a Title Search and Why is it Important?
A title search is a thorough investigation into the prior ownership of a property. It verifies that the seller is the correct owner in the public land records. A seller must have the ability to sell the property. A seller must have marketable title, so the title search determines what issues need to be resolved by the seller prior to sale. The title search finds those liens or encumbrances that may need to be released or satisfied at or prior to closing, or any other defects or concerns.
Why Is a Title Search Important?
Performing a title search is crucial for several reasons:
- Confirm Ownership: Ensure the seller is the legitimate owner of the property in the land records as they exist today.
- Discover Liens: Identify any financial obligations tied to the property, such as mortgages or lines of credit.
- Unearth Easements: Find out if someone else has the right to use a part of the property.
- Check for Encumbrances: Learn about any other factors that could affect ownership, such as unpaid property taxes, IRS liens, HOA liens, mechanic’s liens, judgments, bankruptcy filings.
- Insurance: Based upon the title search findings, the title company prepares a summary report that can be sent to the buyer’s lender and used for the purchase of an owner’s title insurance policy at closing.
- Correct any Problems: Occasionally, a title search will discover an issue that needs to be resolved prior to closing. Sometimes, it may be relatively simple, such as getting an unreleased mortgage satisfied on the land records, or there can be much more complicated issues as well.
Step-by-Step Breakdown of a Title Search Process
Step 1: Engage a Title Company or Legal Expert
The first step is to hire a professional who specializes in title searches, usually a title company or a real estate attorney. These experts have the experience and resources to efficiently dig deep into the public records.
Step 2: Access and Examine Public Records
Your title company will scrutinize several types of public records:
- Property deeds
- Land records
- Tax records
- Court records
- Probate records
Step 3: Verify Ownership and Chain of Title
The “chain of title” is the historical sequence of owners for a particular property. Your title company will trace the seller’s ownership back in the land records to confirm their ownership rights.
Step 4: Identify Liens and Financial Obligations
Any financial claims against the property must be discovered. These could include:
- Mortgage liens, HELOC’s, Lines of Credit and other interests in the property
- IRS, State, County and Other tax liens, including any unpaid property taxes
- Mechanic’s liens
- HOA liens
- Bankruptcy filings
Step 5: Discover Easements, Covenants and Conditions
Easements allow others to use your property in specific ways, such as the use of part of your property by the electric company to run electric wires underground. Covenants and conditions may place restrictions on how you can use your property so that the value of adjoining properties are preserved, such that your HOA may have restrictions on the type of fence you put up, or color of your house if you repaint it, etc. These need to be clearly identified.
Step 6: Title Abstract and Title Opinion? What is a Title Company for Anyway?
A title abstract is a summary of all findings during the title search. A title opinion is then issued providing an analysis of the current title status and the ability of the seller to provide marketable title.
*Keep in mind, the title company does a title search from existing public land records to determine whether a seller can transfer title to a buyer. The title company also prepares the documents for the buyer and seller to sign at closing to complete the sale transaction according to the terms of the contract.
** A title company cannot verify many things from the public records. For instance, it cannot verify whether some fraud has or will occur, if there are mistakes or defects in the public records or recordings, or whether unknown heirs have yet to make a claim on the property. It cannot tell from the public land records whether there are existing permit, zoning or HOA violations that will creep up later after a purchase. It cannot know if a mechanic’s lien will be filed after purchase, or if the legal description is correct. These are issues where title insurance comes in because it insures against the possible problems that stem from these unknowns.
Step 7: Purchase Title Insurance
After your title search is complete, a buyer typically purchases two types of title insurance.
Lenders Title Insurance: A lender will require that the buyer purchase a lender’s title insurance policy up to the loan amount. This is for the sole benefit of the lender to insure they are insured for potential problems with your property.
Owner’s Title Insurance: A buyer can purchase an owner’s title insurance policy that insures the buyer for the contract amount. There are two types of owners policies – Basic and Enhanced. The basic owner’s title insurance policy protects you against certain minimal losses that arose before you bought the property, whereas an Enhanced Policy protects you against substantially more losses that arose both before and after you purchased the property. A basic policy also expires when you sell your property (or when certain warranties expire when you sell your property), whereas an Enhanced Policy continues as long as you live, and even when your heirs inherit the policy as well. It is always recommended that you purchase the Enhanced Policy.
A title search is a non-negotiable part of buying property. It’s the best way to assure that your new home or investment is a wise one, free from legal complications. When you understand each step of the title search process, you’re better prepared for a smooth and successful property transaction.
If you have more questions or need expert assistance with your title search, feel free to contact us today!