If you’ve never bought a home before, the number of extra steps between offer accepted and actually owning your own home may comes as a bit of a surprise. One of those hurdles you’ll need to clear before you can sign on the dotted line is called a title search.
What is a Title Search?
In legal matters, title is a term that covers the rights and responsibilities associated with ownership. Basically, having title means having ‘legal right to decide what happens to’ a thing, like a house or the land it sits on. (For everyday real estate purposes, title is pretty interchange with deed, the piece of paper that proves evidence of title rights.)
For legal-scholar types, having title to a property can include a number of specific rights—think things like the right partition the property, to sell it, to use it as collateral for a loan, and the right to use the property or decide who else can use it. You’ve probably read news articles concerning air rights or mineral rights or hunting rights, all of which fall roughly under title issues.
But for those of us whose legal training is limited to what we’ve gleaned by watching Law & Order, the principle behind a title search for a home purchase is pretty straightforward:
You can’t sell something you don’t own. And if the fellow who sold you a thing in the past didn’t actually own it… Well, then you’ve got a serious problem.
Unsurprisingly, mortgage lenders don’t want to give anyone money to purchase a home with title issues. If you give person #1 a bunch of money for a home that person #2 actually owns, or claims to own, you could find yourself without a house or the money you mistakenly paid to the wrong person for that house. So most lenders will require a thorough title search and title insurance as a condition of receiving a mortgage.
As a homebuyer, paying for a title search and title insurance is going to part of the closing costs for your mortgage. For the most part, it’s a sit-back-and-wait
How Does a Title Search Work?
When it comes to real estate, who-owns-what is a matter of public record. States and local municipalities want to know who to send these property tax bills to, after all.
So when a title company begins a title search, title professionals will start by combing public records. Lots of title companies keep fancy, proprietary in-house databases of property records, to make title searches easier. But public records being what they are, it’s not unusual for title agents to spend time digging through actual paper records in courthouse basements, sifting through files the old-fashioned way.
What are Title Companies Looking For?
With every title search, title agents hope to find clear, well-documented records supporting all past transfers of ownership for the property.
A inherited the property from B, who bought it from C, who acquired the home in a divorce from D, many years after C and D jointly purchased the property from E, who inherited it from F, etc. Ideally, all the way back to when the home was built.
In addition to establishing an unbroken chain of ownership, title agents also hunt for any encumbrances on the property that might prohibit the property from being sold. Encumbrances could be issues like unpaid property taxes or existing mortgages. Contractors sometimes put liens on a property when work is being done before payment. Encumbrances could also include issues like evidence of encroachment—say, a tree that now technically extends a few feet over your neighbor’s property line.
What Happens if a Title Search Turns Up an Issue?
Things happen. Records go missing. Folks inherit property in a will but never bother to file new paperwork with the county. Contractors forget to lift liens after they’ve been paid for their work. As they say, the devil is in the details. And it’s the title agent’s job to sort through those details and clear potential encumbrances if at all possible.
If documentation is missing, title agents will try to locate the missing records. Perhaps the existing homeowners have copies of a missing will or deed of sale. Maybe the county records for a particular decade are being stored offsite and need to be retrieved. A quick phone call to an old contractor might be in order.
If a title search turns up a more serious issue, your lender may be unwilling to finalize your mortgage until the title can be cleared. In other words, title issues can derail home purchases.
That said, finding out there’s a serious issue before you buy a house is much, much better than being surprised afterwards. Imagine buying a place only to find out that a third of the house you just bought is actually over the property line and in the neighbor’s yard. Or discovering that a deed was forged and the person you paid for the house never owned it to begin with.
Title companies are experts in finding issues, and can alert you to potential scams or concerns before you buy.
But If All Goes Well…
It can take a few weeks and some legwork, but most of the time, title companies will be able to determine that there are no encumbrances preventing the property from being sold.
When the title company is satisfied that they’ve found sufficient documentation to assume that there won’t be any legal challenges to the title in the future, the title company will guarantee their work with title insurance. If the title company missed something or made a mistake concerning the title, title insurance will protect you and/or your lender from liability.
Sometimes, title companies also work as de facto closing agents for real estate transactions.
That means that in addition to sorting through the property records, title companies sometimes collect signatures and documentation from buyers and sellers and insurers and lenders, and schedule or even host closing day proceedings. It’s not unusual for title companies to also act as escrow agents, holding earnest money for buyers while the details for closing are being finalized.
When everything is complete and you officially own your new home, title agents have one final task: filing the new deed and mortgage records with the county. So the next time a title company needs to do research on your home, the records for your home purchase will be right where they need to be.