According to the most recent statistics from the National Association of Realtors, issues with property title searches and deeds cause around 9% of home sales to fall through.
If you’re trying to sell your home or a home you’ve inherited recently, it’s a good idea to conduct a title search, so you can take steps to avoid this issue.
Otherwise, you could end up with frustrating delays or lose your buyer altogether. Keep reading to find out more about property title searches and how they can affect your home sale.
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What is a property title?
A property’s title describes the owner’s rights in the context of ownership. It’s different from a deed in that it refers to aspects involved in owning the home.
A deed is a document, whereas a property title is a legal concept. It describes the range of rights that come with owning real estate.
What is a bundle of rights?
Ownership of a property comes with fixed rights, referred to as a bundle of rights. These outline the owner’s legal privileges regarding the property.
They define what the owner can do with the property within the bounds of the law. Owners have the right of:
Control
The title owner has complete control over how they use the property, as long as the intended use is legal and complies with overriding regulations, e.g. HOA rules.
The right of control refers to the freedom to use the house as a residence, guest house, or for other municipally-ordained purposes.
Possession
Once the owner has paid for a property, they enjoy the right of possession. They maintain this right as long as they abide by any relevant regulations and pay their property taxes.
If the owner takes out a mortgage on the property, the lender splits the lien of the property with their lender. That means they can foreclose on the property or take possession of it in the event the mortgage holder defaults on their payments.
Exclusion
The titleholder may decide who enters their property. This does not apply if law enforcement agents or utility workers must enter the property to perform their duties.
Disposition
The right of disposition gives the property owner the power to transfer ownership of the title to whoever they please, provided they own it outright.
They can transfer ownership temporarily or permanently, as they see fit.
Investigating the seller’s rights
When buying a new home, it makes sense to ensure the seller is the only one with a claim to the property. Claims and liens against the property can affect whether this is the case.
A property title search reveals whether the owner has the right to sell the home.
The term ”clean title” refers to instances where there are no issues, while a ”dirty title” implies there is uncertainty over the owner’s rights.
These uncertainties could relate to serious issues, or something as simple as a typo in the relevant documentation. The owner can’t sell the property unless they resolve these issues.
What is a title search?
The title search process usually starts after the seller makes their initial offer on the home.
If a buyer is financing a home, their lender will likely insist on a title search. That’s to protect them from investing in a property that isn’t salable.
Cash buyers aren’t obliged to perform a title search, but they could discover problems if they try to sell the home in the future.
When a seller buys a home, they can inherit a lot of hassles attached to the property, including mortgage liens, easements, restrictive covenants, and debts.
Title insurance
Title searches are mandatory in cases where a real estate transaction requires title insurance.
Even the most experienced professional may overlook certain issues during a title search. Title insurance protects the lender and the buyer against damages or losses incurred by these oversights.
It differs from the usual type of insurance in that it covers past events, rather than potential future ones. Most title insurance policies cover the following:
- Instances where someone apart from the seller owns the property
- Document forgery or fraud
- Incorrectly signed documents
- Flawed record-keeping or records
- Unrecorded easements or other restrictive covenants
- A judgment involving the property like outstanding lawsuits
- Outstanding liens on the property
The term for someone who does a title search for property is “abstractor”.
An attorney or title company usually carries out the title search process, although some states insist on one or the other of these professionals doing the searching.
There are 23 attorney states in the US that demand a real estate attorney performs the search.
In a nutshell, a title search involves examining public records to ensure there are no factors that could cause another entity or person to assert a stake in the home.
These factors include liens, issues, and claims.
What do property title searches look at?
The municipal clerk or county office usually maintains the records of all properties in their jurisdiction. The title company will visit one of these locations to start the title search.
Nowadays, they might have access to online records, which can save time.
They review all the available sources of information related to the home in question. These include:
- Bankruptcy records
- Construction liens
- County land records
- Deeds
- Divorce details
- Property plat plans
- State of federal tax liens
- Probate cases
- Judgments
- Maps of the area
Other factors that can assist in the search include mortgages attached to the property, as well as street and sewer assessments.
A title search can only look into publicly recorded information. Only a separate judgment search will help bring these to light.
Once they’ve gathered all the information, the title company or attorney will create a report containing details of their findings.
What problems can a title search reveal?
A title search may all kinds of deep, dark secrets regarding a property, but some issues come up more than others. These are:
Lack of continuity in the chain of title
All property transfers must follow a logical sequence. For instance, Seller A sells to buyer B, who then becomes the seller when transferring to buyer C, who sells to buyer D.
If the transactional document between B and C doesn’t exist, there’s a link missing. You can resolve this by obtaining a deed for the missing transaction.
Irregular or missing legal descriptions
These kinds of errors usually involve clerical oversight, and they’re easy to rectify. All that’s needed to rectify this is obtaining a corrected deed from the parties involved.
An affidavit from someone who drafted the document will usually suffice to correct the error, but only if it doesn’t change the nature of the legal description.
Missing interests
If a title chain includes a transfer from an estate, the abstractor must ensure any heirs have relinquished their claim to the property. Alternatively, the seller must acquire proof of this from these parties in the form of a deed releasing their interests.
Open security deeds
If a property forms part of a security deed, the holder of the security deed must release the property before it’s sold. Often, these deeds stay open in error, so this is often a quick fix.
Liens
Liens are legal claims on a property used as collateral to fulfill a debt. These may include contractor’s liens for unpaid home repairs.
If this factor comes up in a title search, the abstractor must determine if the lien has expired, or if it does not apply to the party involved.
Outstanding property taxes
Known, as ”ad valorem” taxes, the seller must pay any outstanding property taxes before they can transfer ownership to the buyer. If the lien is already sold, they’ll need to buy it back from the holder.
What happens when a title search reveals problems
It’s impossible to transfer property until all the issues mentioned in the title search are completely resolved. This leaves buyers with three options:
- Asking the seller to resolve the issues
- Fixing the issues themselves and asking the seller for compensation
- Walking away from the deal and receiving a refund for the deposit
In this way, a dirty lien can create lengthy delays and costly extra expenses.
How long does a title search take to complete?
In most cases, it takes one or two weeks to complete a title search. The process may take longer in the case of an older home or when the house has changed hands frequently.
With older homes, the searcher might need to go back in the records for 50 years or more, to discover the root deed. From there, they must investigate each subsequent transfer to ensure everything is above board.
How much does a title search cost?
The cost of a title search varies depending on who is searching and the value of the purchase amount. You can expect to pay anything from $75 to $1,000 for this service.
The value of a title search lies in the fact that it could save the buyer thousands of dollars by revealing expensive issues that may crop up after they buy the home.
For sellers, pinpointing any potential issues before listing their home may prevent the buyer from backing out, or time delays due to a minor issue in the title search.
Once the title search is complete, the person who paid for it gets a simple report concerning all the documents connected to the property. This report highlights any encumbrances that may hamper the sale of the property or cost extra money at closing.
The title search includes two main costs, as follows:
Settlement service fees
These expenses include those incurred close to the loan, such as escrow, wire fees, and underwriting of the title insurance policy. It may include costs to resolve any issues discovered, too.
Title insurance premium
Title insurance involves a one-time cost paid at closing. They can amount to anything from 0.5 to 1% of the purchase amount.
How to do a title search on property
Anyone can do a title search on a property. It’s much cheaper to do a title search yourself, but this time-consuming and complicated process is best left to the experts.
All you need is the property’s legal description, i.e. the wording on the deed. This usually occurs on the property’s tax statement.
You take this information to the Office of the Examiner of Titles or the county Recorder’s Office and tell them you want access to public records. You can search for details about these government offices online.
One of their employees will usually help you look up the chain of titles on a computer terminal.
The rest is up to you. Unless you have a list of what’s required and experience deciphering legal documentation, it’s easy to overlook important aspects during a title search.
You’ll need to visit several offices, or websites, and spend hours going through sometimes complicated legal documents. It’s easy for untrained people to overlook important details during a property title search.
You need knowledge of real estate requirements and lien periods to carry out a title search. You’ll need to navigate complex records and legal indexing along the way.
Add to that the possibility of missing documentation, and you’ll never really know if you’ve covered all the bases in your title search.
Due to the difficulties involved, a title insurer will always insist that a professional carry out the title search.
Avoid worries about title searches
If you’ve inherited a home, property title searches may reveal issues you’re unaware of. In this case, selling to a cash buyer might be your best option.
With iBuyer, you have access to numerous cash investors. Some of these will pay cash for properties with minor title issues and assist you in clearing these up.
Get started by entering your address in our home value estimator to see what you could get for your home, right now.
