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, such as:
• County land records
• Property plats
• Tax liens (federal or state)
• Divorce cases
• Bankruptcy court records
• Probate cases
• Construction liens
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.
How long does a title search take?
The title search can take as little as a few hours, but in most cases, it’ll take between 10 and 14 days. In general, the older the home, the longer the title search. If there’s a lengthy cast of owners and transactions involving the property — a home equity loan against it, for example, or a past property line dispute — there is more work involved to make sure there is a clear title.
“The search may go back as far as 50 years, or as far back as needed to identify the root deed and review each subsequent transfer of the property,” says Stitgen. “This ensures there is proper chain of title moving from grantee to grantee, all the way through the current owner.”
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. “In some cases, an affidavit from a scrivener, preferably the party who drafted the document or recorded the document, someone with knowledge of the transaction, may suffice to solve the problem, but only if the mistake is non-material and doesn’t change the nature of the legal description,” Stitgen says.
• 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. “If this has not been done, it will be necessary to obtain deeds from these parties releasing their interests,” says Stitgen.
• Open security deeds: The title search may uncover an open security deed from the current or prior owner that was never released. “If so, some research needs to be conducted to determine if this is left open in error. If it was, you’ll need to obtain a release from the holder of the security deed,” advises Stitgen.
• 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 percent to 1 percent of the purchase amount. Because it’s a percentage of the purchase amount, your premium can increase if your loan amount goes up.”
Can I do my own title search?
Anyone can search property records through their county clerk’s office, and no law says you can’t conduct a title search yourself. However, the experts strongly recommend against trying to sort through the details of a property title on your own.
“Conducting a title search requires knowledge of real estate requirements and lien periods and the ability to navigate various courthouse records. It’s not advisable to do this without experience, due to the complexity of records and indexing,” says Patti DeGennaro, senior operations manager and process specialist with Title Alliance, Ltd., in Media, Pennsylvania.
Also, “if you wish to purchase title insurance for your property, conducting the title search yourself will not suffice because the title insurer will require that a professional conduct, review and advise on the search prior to issuing a policy,” adds Stitgen.