Many have seen it on closing documents when we buy or sell a home: title search, settlement service fees, title insurance premiums, document fees, and filing fees. What are they all about? Do we really need to pay those fees? This post focuses on title searches starting with the background on what a title is and how it is different from a deed. Then we progress to why a title search is important and how you can do your own. We end with whether you should do your own.
What is a Title?
We hear about title searches on properties but also see documents being filed at the Register of Deeds or hear expressions like, “whose name is on the deed?” We get the sense the terms are different, but they seem like they are used interchangeably. What is going on?One way to organize these terms is to think of the title as your right to ownership of the property. It is a legal concept. Like many legal terms, the definition can be convoluted but think of the concept of title as the concept of ownership.
- The right of possession; The property is yours
- The right of control; You decide what to do with the property if it is within the law
- The right of exclusion; You choose who can step into your property
- The right of enjoyment; You may do what you wish, again, as long as it’s nothing illegal.
- The right of disposition; This right, gives you the right to transfer ownership of your property, some exceptions, may apply.
“Okay, but if title is just a concept, how do I prove that I have ownership? Isn’t there a title for real estate like we see a Certificate of Title for a vehicle?” That is where we get into deeds.
Clearing a property title means determining that it is free of liens or encumbrances that could pose a threat to its ownership.
Deed vs. Property Title
Ownership of a property was initially shown by possession. Possession is still sometimes used as legal evidence of ownership when a person claims “adverse possession.” What is most common today is for ownership to be documented in a deed. That documented deed shows the transfer of title (or ownership) of the property in question.
When you buy a house, a deed will be created that conveys, or transfers, the rights of title from the seller (s) to you. The previous owner is the grantor, and you are the grantee. If you get confused about the grantor/grantee names, you can compare them to lessor/lessee.
If you have rented before, you probably know the landlord is the lessor and the tenant is the lessee. We are avoiding mortgage terminology because that gets flipped around a little…
Back to doing the deed (I had to put that in there). To be legal, a deed needs to have several elements:
- Be in writing,
- Clear description of the property,
- Grantor(s) and grantee(s) identified,
- Some wording stating that how the deed is transferred,
- Signed by the grantor, and
- Accepted by the grantee.
When you take ownership, you want to be 100% sure you’re getting what you think you are buying. Many people take out mortgages where they commit to paying three times the purchase price of the home over 30 years (check out an amortization table if you’re curious about this). It’s reasonable to have a bunch of questions about what you’re buying. Here are some:
- How will you be confident that the seller is able to sell you the property?
- Is the deed valid?
- What if years ago an owner allowed for a public trail to go through the back yard or agreed that they wouldn’t grow trees over a certain height so neighbors’ views would not be obstructed (encumbrances)?
- What if the seller didn’t pay the plumbing company for that beautiful state of the art heating system and there’s an unsettled lawsuit (mechanic’s lien)?
- What if they’re going to stiff you with the water bill?
Or what if they are a normal seller who is just selling their property so they can move elsewhere? How will you ever know the truth? It can be stressful. That’s where the title search comes in.
Title Search
A title search is just what it sounds like. Someone, usually a lawyer or a title company, searches through the documents that can affect ownership of the property (title). What they’re looking for is anything that can affect the seller’s ability to sell that property. Examples could include:
- Missing deeds
- Incorrectly recorded deeds
- Owners who have not relinquished their interest in a property,
- Liens,
- Unpaid utility bills, and
- Unpaid property taxes.
The people that do this work may be licensed in their state and almost always have extensive experience in that town/county. Depending on the type of search required, they may be a Title Abstractor or Title Examiner. They usually carry some sort of errors and omissions insurance coverage in case they make a mistake. Attorneys may be held liable for negligence if they fail to property conduct a property title search in New York and other states.
Who Requires Title Searches?
There are two general situations where a title search is needed. The most common one is for financing. The lender wants to be sure that the collateral (the property) being put up for the money they are lending (the loan) has clear title. You may also hear “no defects,” clouded title, bad title, or exceptions. The lender’s concern is that the property will hold its value if they end up owning it because you didn’t pay off the loan and they had to foreclose. The way they require a title search is as a condition of the mortgage. They require you to purchase a title insurance policy for the lender. That insurance policy will be only be issued by an insurance carrier if there’s a clear title search.Another situation where a title search may be needed is when you, the buyer, are paying cash and want some peace of mind about the property you’re buying. This is especially important with quitclaim deeds found in off-market, auction, or foreclosure sales.A frequent problem is trying to figure out what type of search you need and how far back you should go. Each state has different requirements, so you’ll need to get familiar with the laws pertaining to your property. For example, a property title search in Ohio should go back at least 40 years.
How to Get an Abstract of Title vs. Title Report
There is a nuance in naming the type of title search. Rather than rewrite this blog, here’s a great reference to the differences between an abstract of title and a title report. While either is going to establish a chain of title, the main difference is the abstractor picks up significantly more risk. This is one reason why title insurance companies outsource their work to abstractors.
Can I Do My Own Title Search or Why Would I Pay Someone for This?
Maybe you don’t have a lender for your property. That means no one is requiring you to buy title insurance. That means no property title search is required. Should you do your own title search and save a few bucks? This attorney attempts to answer that question. The answer is long and complicated enough that it may be easier to pay a few hundred bucks for the peace of mind depending on the risk of the investment.It doesn’t hurt to start with your own search if you want to know the current owner of a property and any liens they may have. Be careful; here’s a horror story about property title search in florida where the buyer thought they knew the owner. You may also decide to go back to the previous owner (known as a two-owner search), but you’ll want to verify any liens. These can be started online at sites like PropertyScout.io. If you need to go back prior to two owners, or the property value is over $5,000, it’s probably best to hire an expert.