A title is a legal document that includes the specifics about the property you are purchasing and who owns it, often in the form of a deed. One of the steps in buying a home is to have a title search completed prior to closing. Many first time buyers may not have heard much about this process. A title search is performed to ensure that the title is clear and that there are no unexpected surprises. While most home purchases are completed with very little hassle, some do involve issues with the title. Although most are minor problems and easily resolved, it is important to understand what to expect.
1. Purchasing Title Insurance
Once you are under contract on a house, one of the first things you will do is buy title insurance. There are two kinds of policies:
Owner’s title insurance – protects the buyer
Lender’s title insurance – protects the lender
An owner’s policy provides coverage equal to the amount you are paying for the property. It protects the owner if a problem is discovered after the search is completed. The insurance company provides legal assistance and pays any valid claims. Paid at closing, this type of policy provides protection for as long as you own the home.
Although you will have very little involvement with the actual title search or resolution, it’s important to have title insurance. Understanding the process can give you peace of mind through the home-buying experience.
2. Prior Claim to the Title
A title investigator looks for any claims to the title that may affect your purchase. The search will include public records and other land records spanning many years. You might be surprised to learn that over one-third of all title searches uncover some kind of problem. Here are a few of the most common issues:
Previous owner failed to pay state or local taxes
A contractor was not paid for work completed
Mistakes or omissions in deeds
Undisclosed owners, heirs or conflicting wills
3. Resolving Issues with the Title
If it is discovered that the seller of the home you wish to purchase has ownership with another party, then any and all owners must sign the closing documents before the sale can be completed. Outstanding judgments or delinquent taxes must be paid at closing before a clear title is received. The seller has the responsibility for resolving any issues with the title.
A title search also provides information about easements, restrictions and rights-of-way that could limit your use of the property. Review these documents prior to closing to ensure that you understand any potential impact.
4. What to Do with a Title
Once you are the owner of your new home, place your title in a safe place, such as a safe deposit box at the bank.
5. What Happens to the Title When You Sell
When you sell your property, your title ownership is transferred to the buyer. That party will receive a copy of the new title a few weeks after closing, indicating that they now own the property and you no longer have any claim to it. The title that you hold is now invalid.
6. What to Do If You Lose Your Title
Loss of your title is no reason to panic. You can go to the clerk’s office at the county courthouse where the property is located and request a copy. If you have a mortgage on the property, your mortgage banker should also have a copy on file.
For a first time homebuyer, a title search is often just one more new task in the unfamiliar and possibly confusing process. If any title issues arise, it can cause stress and anxiety. Stay calm. While title issues may delay closing in some cases, they typically don’t cause lasting effects.