While you’re taking out a mortgage loan and buying a house, vital tasks happen behind the scenes. One of those tasks is the title search. And you might be asking…
What’s the point of a title search?
You’ve made an offer and you hope to get to the closing table quickly. But before you can have the title transferred into your name, the seller’s full rights to convey ownership have to be vetted. The title search makes sure you can actually receive the deed free and clear — and, in turn, enjoy full ownership rights.
What’s being vetted?
Title companies scour public records, looking for issues (“defects”) in the chain of title, burdens (“encumbrances”), or claims concerning a property. The search goes back to the original deed or as far as records allow, affirming the integrity of the chain of title.
After the search, the title company presents the interested parties with its results. The seller, buyer, and their agents, the mortgage company… All will receive the preliminary title report.
What issues could the title search spot?
Perhaps the search will uncover evidence of a long-ago unrecorded conveyance, which clouded the title or broke its chain. Perhaps something is missing in the deed’s legal description of the property.
There might be outstanding loans secured by the property, or charges owed for city services. Construction or repair workers might have placed mechanics’ liens on the home.
The search will find probate decisions, divorce court orders and child support liens, unpaid homeowners’ association dues — any monetary judgments against seller.
What other value does a title search have?
Search results provide information about deed restrictions that limit what can be put on the property, and things like height and style of any structures a buyer might hope to add. Deed restrictions can keep owners from activities like erecting fences, parking cars out in front, having dogs, or managing certain home businesses. Their purpose often involves aesthetics and keeping property values up.
Is there any checking how much property is actually there?
Yes, the title company is careful to extend insurance to the precise area, checking for encroachments and easements on the land. (An encroachment is a structure that intrudes on the property from outside its boundaries, and an easement is another party’s right of way across the property.) Part of the work involves using special software to check the property survey, including the surveyor’s field notes, so that the correct spaces and boundaries are present and accounted for.
What kind of encroachments or easements might be problematic?
Imagine if the survey observes an electrical tower on the land, but no easement is found in the county records. Or perhaps there’s an equestrian trail but no matching easement.
In a quite common situation, the driveway put in by the homeowner next door extends over the boundary line recorded in the deed. Did the owners agree to this, but neglect to record their agreement? The title company has to reconcile these questions before closing.
If the search uncovers a serious problem, could the buyer back out?
Some claims on the title, such as a property tax bill or an unpaid electric bill, can be resolved by the owner. The mortgage lien can be resolved by a payoff from the home sale proceeds. But things like undisclosed easements, if they’re intrusive, could be deal breakers. The buyer can cite marketability of title contingencies in the purchase agreement to back out of the deal prior to closing.
In some transactions, such as foreclosure sales, defects in the chain of title are no surprise, and the title company works to cure them. Most of this important work is done behind the scenes.
In other cases, some title defect from the past catches the seller unprepared. When the buyer and seller fail to work out a remedy, negotiations can break down. Sometimes, backing out and getting the deposit back is the only reasonable choice for the buyer.
Tough situations may require a lawyer’s representation, to pursue a quiet title action in hopes of curing the defect.
Definition: A quiet title action is a court proceeding to determine rightful ownership, ensuring that the title is free from conflicting claims. It can be filed by a mortgage lender, buyer, legal title holder, or the party in possession of the property.
Do title issues often hold up closings often?
In fact, they do. Sometimes for a few days, sometimes much longer. Mechanics’ liens expire after a certain time and can usually be cleared up, but tracking down the contractor and dealing with the matter could delay a closing for weeks.
To get the closing back on track when there’s some unresolved matter, a buyer needs to consult with the real estate agent, and understand what action the purchase contract permits. Sometimes the remedy is price negotiation, to allow the buyer to get through closing with funds to pay for a legal remedy. In other situations the seller can quickly resolve a debt and closing can happen.
A corrected deed might be necessary before closing if the seller can clear up the cloud. Sometimes title defects are cleared by recording a quitclaim deed, to allow someone to relinquish a possible claim. Some are cured by filing a release — of a paid off loan, for example, or a court-ordered lien from the past.
Is there anything a title company can’t find?
Yes. The past sometimes complicates things. Maybe a legal spouse went unnoticed in the records, or a past owner’s rightful heirs were bypassed in probate. Someone could have conveyed the property under a legal incapacity, an owner’s name could have been forged. One spouse might have signed the other’s name. And so on.
Title reports vary in their level of thoroughness and detail. Some title examiners (and the lenders who rely on them) look for everything that could possibly matter. Others focus only on obvious defects. But even minor ambiguities in the chain of title should be resolved, so that all future transactions involving the property go through without trouble.
What happens if title problems exist, but are only discovered after the purchase?
This is a major reason to have a title search. A completed search allows the property to be insured on behalf of the mortgage lender. This way, the buyer can obtain the mortgage. And the lender gets coverage for title issues that could arise later and cast legal doubt on the borrower’s free and clear ownership of the asset.
Does the title company cover the buyer if title problems come up later?
If the buyer pays for it at closing, an owner’s title policy can protect the buyer from unpleasant surprises down the road. This policy is an added cost, and it’s optional. It’s available for a one-time payment, which typically amounts to a half or one percentage of the home’s price, and there are no further premiums after that.
The owner’s title policy protects the buyer and the buyer’s heirs from many common title problems, and extended title coverage is available for others. A buyer should check the title commitment and be familiar with its terms, conditions, and exceptions.
Is a do-it-yourself title search acceptable?
Looking into the county records is a good practice for buyers and owners. Anyone preparing to sell a home would be well advised to do this. The recorder’s office is right in the home’s county, and many records are now available online.
To obtain insurance, though — which in turn enables a mortgage approval — the conveyance must undergo a licensed professional’s title search.
Think of a title company’s search as part of an accountability trail. The people who conduct the search are themselves insured for any errors and omissions that could impact the title.
Thank you for this discussion.
It is our pleasure to talk titles with you! In a nutshell, the title company’s research, curative work, and insurance are all about reducing risk, and maintaining the integrity of records that work for all of us.
Photo credit: Markus Winkler, via Unsplash.