Importance of Having a Clear Title
If you’re considering purchasing real estate, it’s likely that you’ve heard of a title search. It’s an affordable tool that can save a lot of time and money in the long run. Not only do they provide peace of mind, they’re also required by lenders when closing on a property. So let’s jump right into the basics.
WHAT IS A TITLE?
The title of a property is comprised of legal documents proving ownership, property rights and encumbrances. A title search is the process of reviewing public records to retrieve recorded documents that are associated with a given property. This will provide an in-depth analysis of property details such as the legal ownership, tax information and an active lien breakdown which may affect the purchase. Legal ownership is determined by recorded documents called deeds which transfer the property from one party to another.
DIFFERENT TYPES OF TITLE SEARCHES
There are different types of title searches which determine the scope of the search. The most common types are:
- Current Owner (O&E Report): a search of the property back to the deed where the current owner obtained title.
- Two Owner: a search of the property back to when the prior owner obtained title.
- 30-Year: a search of the property over a 30-year period.
- Full State Statute: a search of the property based on state statute to issue insured title.
- Assignment Verification Report (AVR): a search for assignments and mortgage related documents to verify the last mortgage holder or assignee.
Having a clear title means there are no disputes over property rights, and there are no encumbrances on the property. Also referred to as free and clear, a clear title is important to ensure the sale of the property cannot be disputed.
Purpose of a Title Search
The purpose of a title search is to determine the lawful owner of the property, as well as identify any outstanding debts that are tied to the property such as mortgages, taxes, and liens.
Parties Involved in a Title Search
A title search can be ordered from an attorney, title company, lender, investor, or homeowner.
Types of Information Uncovered in a Title Search
A title search will uncover unpaid debts tied to the property such as municipal liens and HOA liens. It will identify outstanding mortgages along with documents associated with the mortgage such as assignments and modifications. Foreclosure actions are reported so one is able to tell if the property is pending foreclosure. Judgments and liens against the property and against the owner are also provided. A title search will also reveal whether or not the property taxes have been paid, or if they’re delinquent.
THE IMPORTANCE OF CONDUCTING A TITLE SEARCH BEFORE PURCHASING A PROPERTY
If you’re purchasing a property, it’s important to know of any outstanding debt since delinquent taxes and certain liens such as municipal liens will stay with the property even after the sale and become your responsibility.
Identifying Potential Issues with the Property
The title search can reveal issues that a prospective buyer may not know about. Some possible issues include invalid/fraudulent deed transfers, boundary line disputes, missing interest from a prior owner, or unpaid liens.
Ensuring the Seller Has the Legal Right to Sell the Property
The title report will show all parties who own the property as well as provide a copy of the deed. It’s important to ensure they own 100% interest as all interest holders would need to sign the deed.
Risks of Not Conducting a Title Search
If a title search is not conducted, any unresolved issues and liens can become the responsibility of the new owner.
WHEN IS A TITLE SEARCH REQUIRED?
Real Estate Purchases
A title search is used for verifying all liens before the purchase of the property to make sure they are being paid off at closing and the new owner does not have to assume them. A title search report will be used to generate a title commitment and title policy as evidence of title insurance on the property. Typically, a full state statute title search is ordered on purchase transactions.
Refinancing a Mortgage
A title search is also used for refinance transactions with and without title insurance. The title report is used to generate a title commitment and verify lien position of the new mortgage, as well as serve as approval of the borrower for the refinance transaction. For some HELOC mortgage originations or 2nd position mortgages, the title search might be sufficient without title insurance as the 1st position mortgage typically monitors all liens against the property.
Transferring Property Ownership
In some cases, a title search is a tool for verifying that the property is free and clear of all liens to transfer the ownership. The search will be used for copying the property legal description and proper ownership details for the new deed prepared to transfer the property. Land acquisition companies use the title report for preparing deeds, leases, or purchase agreements.
DON’T MAKE THESE TITLE SEARCH MISTAKES!
It’s important to understand what is on a title search. Here are examples of some misconceptions.
- The title search didn’t include the note: A title search will only provide documents that are recorded in land records. Notes are not recorded; however, the mortgage (or deed of trust) will be.
- The title search doesn’t list the unpaid balance of the mortgage: A title search will only list the origination amount that is listed on the mortgage copy. Mortgage payoffs are not available to third parties.
- The title search only provided the most recent deed: Be mindful of the type of search you are ordering. A Current Owner Search will only include the deed into the current owner. Always be familiar with the scope of the search that is being ordered.
- The title search doesn’t list any schedules and exceptions: A title policy will list schedules and exceptions whereas a title report does not.
Not Getting a Professional Opinion
It is crucial to understand the property search results in order to make an informed decision. A title company cannot interpret the findings or provide their opinion. Consulting a real estate attorney is always recommended.
Not Verifying the Property’s History
Verifying the property’s history will help reveal if all deeds transferred 100%. If there are any transfers with missing interest, it could result in that party trying to retain ownership.
Ignoring Red Flags
Red flags should never be ignored. Any lingering concerns should always be addressed with a real estate attorney.
Skipping the Title Insurance Policy
Skipping title insurance puts you at risk for a potential title claim even years after purchasing the property. This could mean a lien holder comes after you for a lien that was not disclosed on the title search, or it could be an individual that had ownership rights that no one knew about.
HOW TO CONDUCT A TITLE SEARCH
Hiring a Professional Company
It is strongly advised to hire a professional company to conduct a property title search. GTS SERVICES has many years of experience conducting nationwide title searches with a team of experts familiar with all aspects of title.
Conducting a Title Search on Your Own
Conducting a title search yourself is never recommended. A title search should always be performed by an experienced team of abstractors. There are too many variables that could lead to a flawed title search if not completed by a highly trained individual.
Resources for Conducting a Title Search
Title searches are completed by utilizing assessor and tax databases, county recorder registries, and civil/judicial records.
HOW MUCH DOES A TITLE SEARCH COST?
The cost of a title search will vary depending on the location of the property, if it’s residential or commercial, as well as the search type. Below are the starting prices for some of our most popular title searches. Prices are subject to change and will vary depending on location. We also do bulk searches.
|Search Type||Starting Price*|
|Current Owner (Residential)||$75.00|
|Two Owner (Residential)||$140.00|
|30 Year (Residential)||$195.00|
|Vesting Deed Search||$55.00|
|Chain of Title Search||$100.00|
|Current Owner (Commercial)||$225.00|
|AVR (Assignment Verification Report)||$40.00|