When you're buying a home, you'll need a title search so that you can get title insurance. Title searches can also reassure buyers, making sure there is a smaller chance of problems with the title later on.
We will take a look at the things you need to know about a title search and how it works. Maximum Real Estate Exposure does an outstanding job covering what's essential about a title search but you'll also see the basics here as well.
A title search involves checking public records to find the legal owner of the property. Normally this will happen during escrow after the seller has accepted an offer on the home.
Many public records can be checked to determine ownership, these include:
The search should uncover if any judgments or liens have been placed on the property. It should also find if there are any easements on the property or restrictions on what can be built on the lot.
Typically, title searches are completed by a title company. The person within the company completing the work might be known as an examiner, a searcher, or an extractor. Whatever the person's title in the company, they will have a lot of records to search through to determine ownership.
While it is possible to carry out a title search yourself when buying a home, it isn't an easy option. It would be all too easy to miss something important that could lead to future issues. Also, doing the search yourself isn't going to be acceptable from a lender and won't be good enough for title insurance.
Even if you are buying a home with cash, it is advisable to let the professionals make sure the title is clear of problems.
The amount you can expect to pay for a title search will depend on the purchase price of the home. The cost of a title search can start at around $150, however. If an ownership and encumbrance report is required, this can cost up to $1,000 but will include more detailed information about previous owners and the property.
There are five different steps in the process of researching the title of a home.
The chain of ownership should run from the current owner all the way back to the first buyer of the home. The transfer of the property from one owner to the next needs to be established.
This information is located in public records at the county clerk’s or recorder’s office. This sort of information can also be located in title company records, where they maintain the transfer history of many properties.
For older homes, it could be very difficult to find complete records that go back to when the home was first constructed. If this was 80 to 100 years ago, there is a greater chance that the records will be incomplete, for example. Fortunately, for older homes, the chain of title needs to only go back between 40 and 60 years.
If the chain of title is complete, it shows that the current owner has a marketable title and can continue to sell the property. If there are gaps in the title chain, the current owner may not legally be able to sell the property.
A tax search on the home will show if there are unpaid property taxes. If the current status of the tax record indicates a problem, a lien can be applied that will need to be taken care of before the property is sold.
Inspecting the lot could reveal encroachments or signs of easements that may not be recorded in the documents. If issues like these are found, they will be noted and reported to the buyer.
Searching for judgments on the current or previous owners could uncover problems. If there have been judgments made against an owner of the home, and these haven't been cleared up, they need to be resolved before the property can transfer to a new owner. If there is a judgment, it means there is a defect in the title, and it can't be transferred.
With all the searches completed and any issues or defects resolved, the home purchase can continue towards closing.
One of the most critical aspects of buying a home is having a title search performed. Without a title search, you could be acquiring a multitude of problems. When it comes to due diligence for a property purchase, title searches should never be skipped.
While mortgage companies require a title search, when paying cash you could skip this step in the process. Don't do it! Some of the most regrettable home purchases are ones where a title search was not performed.
Hopefully, you now have a much better understanding of how a title search works.