Before purchasing a home, you need a title search to ensure that you can legally own the property free and clear.
What is a title search?
A title search involves the examination of public records and other documentation to ensure that a property is able to be sold and its title is free of any claims, liens, or other issues that could jeopardize your ability to legally own the property.
Mortgage lenders, for example, 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,” said Landy Liu, New York City-based general manager of Better Settlement Services. “This protects the lender, as well.”
Who completes the title search?
A lawyer or title company usually performs the search, which is most often initiated after the seller and buyer execute a contract.
The company or lawyer generally does the sleuthing at the office of the county or municipal clerk where the property is. Many of the necessary records are now available online.
“This person reviews many sources of information related to the property,” such as deeds, land records, liens, divorce cases, bankruptcy records, and probate cases, said Suzanne Hollander, a lawyer 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, she says.
“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,” said Sarah Stitgen, closing attorney at Cook & James, a firm in Roswell, Ga.
Once all the information is gathered, the title company or lawyer will create a report that reveals what has been found.
What happens if issues surface during the title search?
Here are some common issues that a title search mighty uncover, 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,” Stitgen said. “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 through an estate, it’s essential to make sure any heirs have properly relinquished their interests in the property.
Liens. A title search will often identify liens, which are legal rights or claims on a property that is commonly used as collateral to fulfill a debt.
Unpaid property taxes. Any outstanding property taxes, based on the assessed value of the home, will need to be paid before the title is transferred to the new owner.
If any of these issues is found, home buyers generally have three options, depending on what’s allowed in their purchase contract, according to Hollander:
Ask the seller to resolve the issue before closing.
Ask the seller to compensate the buyer for the cost to fix the issue.
Walk away from the deal and receive a refund of the deposit.
Cost of title services
There are two main costs for title services provided by a title company or lawyer:
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. 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.
Title insurance premium. “Title insurance ensures the person who is buying or refinancing the house as the rightful owner of the property,” Liu says. “The premium is a onetime cost paid at closing that can range from 0.5% to 1% of the purchase amount.”
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. But the experts strongly recommend against it because of the complexity of the search. Also, Stitgen says, title insurance will not be issued unless the title search is conducted by a professional.