What is a Title Search and Why is it Important?
Once you have signed a purchase contract it is important to ensure that the seller of the property is able to transfer their ownership (title) of the property to you, free and clear of any liens, claims or encumbrances. This is accomplished by having a title search performed on the property.
At SIRVA Mortgage, we talk to clients every day about title searches and why they are important. Here are the things you should know before buying a home.
What is a Title Search?
A property title search is done to determine whether there are any encumbrances on the property being transferred. An encumbrance might include an outstanding loan, a lien for unpaid property taxes, a judgment or even a divorce decree. In most cases, the search will be performed by a title company or closing attorney. They will search court records and other public filings to ensure that the seller has the right to sell the property and that you have the right to purchase it.
Why the Buyer Needs a Title Search
When you’re purchasing a house, you need a property title search to ensure that nothing will derail your purchase of the house you are planning to buy. The search of county records gives you a complete picture of the property and provides you with an opportunity to deal with any outstanding liens or judgments prior to the closing date.
While unlikely, there is also the possibility that the person selling the home does not have a clear deed to the property in question. You can’t buy a house legally unless the person selling it is the legal property owner and has an unimpeded right to sell it. A proper search will ensure that you don’t miss anything that could cause legal problems in the future.
If the title search reveals any obstacles, such as liens, encumbrances or restrictions to you buying the property, you may need the assistance of a real estate lawyer to help you resolve them before the closing.
Why the Seller Needs a Title Search
A proper search is important for the seller of a property as well as the prospective buyer. For the seller to sell the home, they must have a marketable title, meaning that there must be no obstacles or financial obligations that might lead to a lawsuit or allow someone to challenge your ownership of the property.
The lack of a marketable title can lead to problems for sellers that go beyond their ability to sell the property. For example, the revelation of a lien or judgment could affect the seller’s ability to buy a new home.
Why Title Searches are Important
Having a clean title on a property is an indication that the ownership is not in question and that the sale of the home can go ahead as planned. Without a thorough search, a buyer could be blindsided by a lien or judgment that is revealed at the last minute or be saddled with a financial obligation they can’t afford after the closing.
Another way of looking at it is that a property title search protects everybody, including the seller, the buyer, and the lender. They ensure that everybody understands what is happening with the property and has an opportunity to resolve any issues that might get in the way of the sale of the property in question.
Can You Do a Title Search Yourself?
Buyers sometimes ask us if they can save money by doing a title search on their own. We recommend against it because people who aren’t experienced searching titles may not be as thorough as a title company and that means they might miss filings that could impact their ownership of the property.
The good news is that in most cases, the cost of a title search with a full report is under $1,000 and is money well spent. Most lenders have a preferred title search company they recommend to borrowers.
Why You Need Title Insurance
While real estate public filings are made in good faith, they are also made by human beings and are therefore subject to the occasional error. Ask anybody who works for a title company and they will share multiple stories about last names spelled incorrectly, inverted numbers, and any other error you can imagine. Errors may occur on a document or during the process of data entry at the recorder’s office. It is easy to miss things if you don’t know the tricks of the trade.
There are two types of title insurance. Mortgage lenders require a Lender's Title Insurance Policy to protect themselves against title defects that might not show up in the initial title search. An Owner’s Title Insurance Policy is additional optional insurance that can be purchased by you that protects against a loss due to title defects not disclosed to you at or before the closing of the purchase. Anything from a mundane mistake to a forgery to unpaid child support can turn into a problem for the buyer and the lender. Title insurance policies protect against unforeseen problems and give both you and the lender some peace of mind regarding the property.
The best thing about a title insurance policy is that you pay for it only once but you will have protection as long as you own your home. That makes the insurance premium, which is usually included in the closing costs, a good investment.
For most people, buying a home is the largest purchase they will make in their lifetime. It makes sense to take steps to protect yourself and your investment. A thorough title search and insurance policy will ensure that you gain a clear title to your new home.