According to the Federal Bureau of Investigation, approximately 9600 homeowners in America are victims of title fraud. While this number may seem small on paper, it definitely begs the question – how can you protect yourself from such identity theft when buying your new home? A home title search is your answer!
What is a Home Title Search?
When selling their house, the seller has to transfer ownership of the property to the prospective buyer. But can you guarantee that the seller is the true owner of the property? Yes!
A title search evaluates past bankruptcies, divorces, deaths, county land records, state and federal tax liens, and court documents and vets the seller’s ownership of the house. The title company or attorney responsible for carrying out the investigation generates a title report, also known as an Ownership and Encumbrance report.
The report mentions the following details:
- Who is the owner of the property
- If there are any unpaid liens, easements, restrictive covenants, mortgages, etc.
- In there have been any prior ownership disputes
- A legal description of the house
👉 For the real estate transaction to be complete, the house title search must yield a clean title.
How Does a Title Search on a Property Work?
To accurately determine the owner of the property, a title search company must lay down a chain of title. This document depicts the history of a home, right from who built it to its most recent owner. Though there may be other documents that also reflect the house’s title holder, a chain of title takes priority if ever an ownership dispute arises.
To establish a chain of title and have adequate documentation supporting it, the title searcher, a.k.a., abstractor, examines legal records and public documents. They look for undisclosed heirs, wills, and any financial expenses that may be a burden to the buyer in the future. The examiner then compiles this information in the title abstract.
The title company also uncovers any unpaid loans, secured debts, taxes, etc., that may pass on to the prospective buyer, thereby safeguarding their interests. Additionally, it checks for title defects like forgery and errors in deeds that could leave the buyer vulnerable to lawsuits in the future.
👉 Do not confuse a title search with a home inspection. A home inspection is a visual and structural examination of the house. A property title search evaluates the legal status of the house and its owner.
If any defect is found during the search and mentioned in the lien title report, the real estate transaction is halted until the issue is resolved. Unsolved building code violations and errors in land surveys could be some of the possible causes of a dirty title.
You can discuss the problem with your real estate agent and come up with a solution that is acceptable to all.
Why Should I Search for Liens on a Property?
A new home is a big financial investment. Hence, it’s only natural that you would want to do everything in your power to ensure a seamless and scam-free transaction.
A lien search on a property saves you the stress of an unknown heir or an angry mortgage lender knocking on your door ten years down the line. Further, you will not have to spend on legal fees defending your ownership in a lawsuit or reimbursing any party for a financial expense that isn’t your fault.
A title search helps secure your bundle of rights as a new owner. These include:
- Right of Control: The owner can use the property as they wish, provided that it falls within the confines of the law and the local homeowner’s association.
- Right of Possession: If the house is bought with a cash offer or the mortgage is paid in full, the owner is then the legal possessor of the property. However, if the mortgage isn’t paid off yet, then the ownership is divided between the lender and the buyer. If the latter defaults on their loan, the lender can choose to foreclose the home.
- Right of Exclusion: The property owner can choose who can enter their property.
- Right of Disposition: The owner can transfer the property title to another individual. This is only possible if they are the sole owner of the property, without an active loan.
Title searches are also important for sellers. It provides them with a marketable title, thereby making their listing more attractive to prospective homebuyers. Further, should they provide a warranty of title to the buyer, they will not be held liable if any unknown title defect does emerge in the future.
How Long Does a Title Search Take?
An abstractor needs to examine documents from different sources like courts, banks, mortgage lenders, etc. Since they each function according to their own schedule, there is no definite time period for a title search. Typically they take around 10 to 14 days.
The time needed for a title search on a property also depends on how old the house is. If it had been built decades earlier, then it would have had multiple owners, increasing the number of documents that must be verified. On the other hand, newer properties will have fewer documents that need to be reviewed, speeding up the process.
Who Does a Home Title Search?
Generally, a title check is required by a lender if the house is bought either via a mortgage or a loan. Carried out by a title company or an attorney representing the buyer, this evaluation helps protect the new owner’s investment. In certain instances, the lender may choose to do the property title search themselves.
Sometimes, the buyer may choose to carry out the title examination on their own. You can do so by:
- Obtaining the legal description of the property you intend to purchase.
- Submit the description to the county’s Office of the Examiner of Titles and request access to public records.
- You will then be guided on how to get the chain of title.
While this should give you enough information about the history of the property, it may not contain all the information you require. Further, the Recorder’s Office will not be able to give you any legal advice about your property.
👉 It is highly recommended that you enlist the help of a title search company or an attorney for your title search. This will save you from financial and legal trouble further down the road.
How Much is a Title Search?
Usually, a title search costs around $75 to $200. However, this varies based on the state you live in and the complexity of the search. Sometimes, the cost of the title search is also clubbed with the title insurance policy. This reduces the overall closing costs of your home.
The party who pays for the title search also varies from state to state. Usually, sellers pay for the title check, but it is negotiable.
Additional Protection: Title Insurance
Title insurance is a policy that safeguards the interests of both the homeowner and the lender in cases of issues associated with the house’s title, including:
- Liens or lawsuits
- Undisclosed heirs
- Errors in deeds
After the title search is complete, if a complaint is filed further down the road, the title insurer will either defend you in the lawsuit or reimburse the required amount up to the policy limit.
Owner’s Title Insurance
An owner’s title insurance policy secures the homebuyer’s transaction from real estate-related issues. While an owner’s title policy isn’t compulsory, it is a highly recommended investment. Further, it is valid for as long as you or your heirs own the property.
Lender’s Title Insurance
A lender’s title insurance generally protects the mortgage lender financing your transaction from someone claiming a right to your house. As the seller pays off the loan principal, the policy value decreases and eventually expires when the mortgage is fully paid off. A lender’s title policy is necessary if you’re buying your home with a loan or a mortgage.
How Much is Title Insurance Going to Cost You?
If you wish to protect your new home from any unknown legal vulnerabilities, then investing in a title insurance policy must be your next move. Its premiums vary based on government regulations, title companies, and the property in question.
Title insurance rates are a part of closing costs. If you want to know how much it will cost you in your state, you can refer to the table below.
Frequently Asked Questions
1. What is an abstract for a house?
A title abstract is a document detailing the history of the house in chronological order. It begins with the first owner of the property and lists every one till the present day.
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