TITLE SEARCH
How this important step can make or break your closing
After you search for a home and settle on the perfect property, there’s still another search to perform: the title search. While the title search may not be as exciting as browsing those listings or dreaming of moving in, it’s a crucial step in a real estate transaction, and can have implications for your purchase if it turns up issues. Here’s what you need to know.
What is a property title?
A property’s title is the term used to describe the rights of the owner. It isn’t a document, like the deed, but instead “refers to the concept of ownership rights,” explains Megan Hernandez, director of marketing and public relations at the American Land Title Association.
If you’re buying a home, you want to make sure that the seller is the only one who has claim to the title. This confirms that there are no other claims or liens on the property, and that the seller does, in fact, have the right to sell you their home in the first place. That’s where a title search comes in.
What is a property title search?
A property title search is the process in which a title company or attorney examines public records to make sure that there are no claims, liens or issues with a property that could result in another person or entity asserting they have a stake in the home.
“This search is conducted to ensure that marketable title to the property can be obtained and that no encumbrances affect the property rights of the purchasing party,” explains Sarah Stitgen, closing attorney at Cook & James, a firm in Roswell, Georgia.
Stitgen notes that a title search is mandatory for any real estate transaction that requires title insurance. This includes homes purchased with financing, as mortgage lenders require a title search in order to provide funds for the loan.
“Think of title searches on a house like an employer’s background check on a job applicant,” says Landy Liu, general manager of Better.com’s homeowners insurance and title insurance and escrow departments. “This protects the lender as well.”
Who completes the title search?
An attorney or title company usually performs the title search, which is most often initiated after the seller and buyer execute a contract. The steps involved can vary depending on location, however.
“In New York City, the search is done by independent title companies,” says Greg Maybaum, a real estate attorney in New York City. “Once the contract is signed, the purchaser’s attorney typically orders the title search, and either that attorney or the title company provides the completed report to the seller’s attorney. It’s the seller’s attorney’s job to then manage and address title issues with the title company.”
The company or attorney generally does the sleuthing at the office of the county or municipal clerk where the property is located. Many of the necessary records are now available online, so the searcher often doesn’t need to physically visit an office to conduct the search.
“This person reviews many sources of information related to the property,” explains Suzanne Hollander, an attorney and real estate professor at Florida International University in Miami.A thorough title search will also likely include details about mortgages attached to the property, street and sewer assessments, taxes and any other title problems present, Hollander says.
Once all the information is gathered, the title company or attorney will create an abstract report that reveals what has been found regarding the title.
What happens if issues surface during the title search?
A title search may uncover one or more problems with the title. Here are some common title issues, along with corresponding strategies to resolve them:
Break in the chain of title: This issue can appear when there is a missing deed in the chain. “If party A conveys property to party B, and then party C conveys the same property to party D, we are missing the link between parties B to C,” says Stitgen. “This can be resolved by obtaining a deed from party B to party C, or a deed from party B to party D.”
Improper or missing legal description on the deed: Depending on the nature of the error, this typically requires getting a corrected deed from the same parties to fix the error.
Potential missing interests: When the title chain includes a transfer via an estate, it’s essential to make sure any heirs have properly relinquished their interests in the property.
Open security deeds: The title search may uncover an open security deed from the current or prior owner that was never released.
Liens: A lien is a legal right or claim on a property that is commonly used as collateral to fulfill a debt. A title search will often identify potential liens on a property. These will require extra research to learn if the lien has expired, if it is possibly not actually for a party in the chain of title or if it is a valid lien that needs to be paid.
Unpaid property taxes: Any outstanding property or “ad valorem” taxes, which are based on the assessed value of the home, will need to be paid before transferring the title to the new owner.
If one of these issues or another is found, homebuyers generally have three options, depending on what’s allowed in their purchase contract, according to Hollander:
1. Ask the seller to resolve the issue before closing.
2. Ask the seller to compensate the buyer for the cost to fix the issue.
3. Walk away from the deal and receive a refund of their deposit.
Cost of title services
Buying a home includes plenty of expenses outside of the actual home price, and the title search will add to the overall tab. There are two main costs for title services provided by a title company or attorney:
1. Settlement service fees: These include expenses incurred to close the loan, such as the cost of wire fees, escrow and underwriting the title insurance policy. The latter includes the title search fee and cost to resolve issues discovered, according to Liu. The price to conduct the title search alone often ranges between $75 and $100, and can be paid for by the buyer or seller if the parties agree.
2. Title insurance premium: “Title insurance ensures the person who is buying or refinancing the house as the rightful owner of the property,” explains Liu. “The premium is a one-time cost paid at closing that can range from 0.5% to 1% of the purchase amount. Because it’s a percentage of the purchase amount, your premium can increase if your loan amount goes up.”