Title Search Explained: Process, Importance, and Title Insurance

What Is a Title Search?

A title search examines public records to verify property ownership and identify any existing claims or liens. This process, often carried out by title companies, is crucial for closing real estate transactions, ensuring a clean title, and facilitating the purchase. Understanding how a title search works can protect buyers and lenders from potential legal obstacles.

Understanding the Title Search Process

As noted above, a title search determines whether there is a clean title on a piece of property or whether there are liens or other defects, such as public record errors, which prevent it from being transferred between parties. The process typically occurs for real estate deals like buying and selling homes or automobiles.

A title search is usually performed by a title company or an attorney on behalf of a prospective buyer who may want to make an offer on the property. The process may also be initiated by a lender or other entity to verify property ownership in order to determine whether there are claims or judgments against the property. This process usually occurs before approving a loan or credit using the property as collateral.

To perform the search, the requesting entity uses public records and legal documents to identify the property owner, liens, judgments, loans, and due property taxes.

While possible, it's not recommended for individuals to conduct their own title searches. Legal documents can be confusing, and gaining access to courthouse records can be a difficult process.

Important Considerations Before Completing a Property Purchase

An attorney or a title company will search public records on a property's ownership before you close a deal on the purchase of a home as a prospective homebuyer. Once the search is finished, you will receive a preliminary title report.

If there are any issues or problems with the title, you can point them out to the seller. Depending on the issue's nature, you can decide whether to proceed with the property purchase.

You should likely involve your attorney and real estate agent in these discussions. Some title search issues are easy to fix, while others might jeopardize your loan commitment.

Clarifying Dirty vs. Clean Titles

A title search confirms a property's legal ownership and identifies whether there are any claims on the property. While a clean title proves sole ownership of a piece of property or land, a dirty title indicates that there is a cloud of uncertainty or discredit hanging over the property or land.

Erroneous surveys and unresolved building code violations can lead to a dirty or defective title. For instance, a dirty title may have unknown liens on it. Or a filing clerk at the county office could have misspelled or misapplied some information when it came time to register the title.

The Role of Title Insurance in Property Transactions

Even a company or professional experienced in conducting title searches can occasionally miss something, or there can be a paperwork error that leads to a document being overlooked. Mistakes can happen, and these mistakes can be costly if you discover there’s an issue with the property after you complete the purchase. This is why buyers often purchase title insurance, which can protect you and your mortgage lender from financial loss if a title-related problem arises during or after the sale.

Title insurance protects against loss or damage occurring from liens, encumbrances, or defects in the title or actual ownership of a property. Unlike traditional insurance, which protects against future events, title insurance protects against claims for past occurrences.

A basic owner's title insurance policy typically covers the following hazards:

• Ownership by another party
• Incorrect signatures on documents, as well as forgery and fraud concerning title documents
• Defective recordation (flawed records or record-keeping)
• Restrictive covenants (terms that reduce value or enjoyment), such as unrecorded easements
• Encumbrances or judgments against property, such as outstanding lawsuits or liens

Example: Conducting a Title Search

Here's a hypothetical example to show how title searches work. Let's assume that you want to move to a bigger home. You've seen a few properties but there's one that piques your interest just a little more than the others. You decide to make an offer.

As the buyer, you want to ensure that the property is free and clear of any liens, encumbrances, and other defects that can prevent you from completing the purchase so you hire a title company to do the work for you.

The title company will take a few steps to determine if the title to your prospective home is clean or defective. This involves gathering legal documents relevant to the property by scouring through public records as well as going to courthouses and county offices. The company amasses all the information it finds to you.

You can go through with the transaction if the title is clear. But if there are any defects, the transaction cannot be completed. Some defects may be easier to clear up than others, such as clerical errors versus liens against the home.

The Bottom Line

Conducting a title search is crucial in real estate transactions to confirm legal ownership and identify any liens or claims on a property. Typically carried out by title companies or attorneys, a thorough search ensures that a property's title is clean, allowing transactions to proceed smoothly.

Despite the potential for complex legalities, homebuyers must prioritize this step or seek professional assistance to prevent future financial loss. Title insurance provides an added layer of protection, covering past errors or omissions that may surface after purchase.