Closing on a loan can be stressful, and the property title search is complicated. Here’s everything you need to know about the property title search. —-
Waiting for your house to close can feel like being in line at the DMV — it takes forever, and whenever you think you’ve gotten to the head of the line, there’s another delay. Some of the elements of closing on a home can be difficult to grasp, like the property title search.
Property title problems account for about 9% of closing delays, according to the National Association of Realtors. A property title search is an easy way to avoid delays in your closing. So what does a property title search entail? We’ve put all the info together for you.
What is the property title?
The property title documents who owns the home, and thus who has the right to sell the home. This might seem straightforward at first; however, if there are liens on the property, that affects a buyer’s right to sell their home — they must settle any liens or claims first.
Only the person who owns the home has a right to sell the home. Again, seemingly straightforward, but let’s say a husband and wife are trying to sell their home, but the home is in only the wife’s name. The wife is the only person who can sell the home, not the husband. This can be important, especially in sticky family situations like divorce.
What is a property title search?
In a nutshell, a property title search is a search for documents on a specific property. The property title, which defines who has legal ownership of a home, might not contain all of the updated information about liens on the property. It also may not include a complete history of the property.
A property title search is comprehensive, so it looks for all local records and sources to uncover all available information about a property. Most importantly, a property title search will tell you who — besides the owner — has a claim on the home.
“Anybody who does home improvement-type stuff can put liens on a house,” says Omaha-based real-estate agent Tyler Bundy.
“I had a situation where a contractor put a lien on the house, claiming the seller never paid him for work he completed. The city then put a lien on the house.”
A property title search will also include any deed restrictions, which means it will tell you if there are limits to how the property can be used. For example, there might be a limit to the type of or amount of construction the city will allow on a property. Deed restrictions could also include:
- Building of fences
- Obstructing a neighbor’s view
- Type and number of vehicles
- Adjacent structures
- Building approval
- Running a home business
- Pet restrictions
- Color palette
- Number of bedrooms
It’s best to know what you’re getting into before you purchase a property, so knowing the deed restrictions is essential.
A property title search will also reveal if there are any easements on the property. An easement is the right for another party to use someone else’s land. Sometimes this happens with utility companies, where the owner will allow the utility company to use part of their property; or if a property happens to stretch across a section of road, the owner will allow public use of the road.
Property boundaries are also included in the property title search. This might seem pretty straightforward if you have a fence or defined property division at the side of a driveway. But problems can arise if previous construction mistakes were made, so it’s important to know exactly where your property lines sit.
When would you get a property title search?
Property title searches are most commonly performed during the closing process, after a buyer has made an offer on a house but before ownership has formally transferred from seller to buyer.
There are other circumstances that would warrant a property title search outside of the closing period; for instance, with investment properties. “If you’re an investor and a seller is offering you a property at a steep discount because they’re in a financial hardship, you should probably pay a title company to do a quick search to make sure there aren’t any liens or encumbrances on the title,” says Bundy. “If there are liens on the property, you can use that to tailor your offer and negotiate.”
What sources are used in a property title search?
A property title search looks at:
- County land records
- Federal and state tax liens
- Divorce cases
- Child support cases
- Bankruptcy records
- Financial judgments
Who performs a property title search?
Usually, a title company or an attorney performs a property title search during closing. However, in some cases (like the investment example above), an individual could pay a title company to perform a property title search themselves.
How much does it cost?
The cost of a property title search varies depending on the state where you live and the amount of information you’re seeking. A basic land report starts at $150; a full ownership and encumbrances report costs up to $1,000. The property title search is usually paid for as part of closing fees and included in the title insurance cost.
What if there are problems with the property title?
Sometimes problems are uncovered during a property title search, including:
- Contractor debts
- Public utilities easements
- Gambling debts
- Child support liens
- Covenants, conditions, and restrictions (CCRs) against the property
- Restrictions, historical oversights, and planning requirements
If a problem is uncovered with the title during closing (or before), there are a few ways to take care of it.
First, the seller can pay whatever debt they owe to clear the title. But what if the seller doesn’t have the money to do that? Then things get trickier, and negotiations begin.
Sometimes the buyer and seller will agree to split the amount needed to clear the “cloud” on the title. Or, if a buyer very badly wants the house, sometimes they will agree to inherit the debt with the home. This situation usually arises in competitive marketplaces where buyers are willing to pay well over the asking price for a home. “If a buyer is willing to pay $5,000, $10,000 over the asking price — sometimes it’s not a big deal to pay to clear up the title search and then ask the seller for a discount,” explains Bundy.
When the buyer and seller cannot come to an agreement, that’s when deals fall apart.
What happens if the property title search misses something?
If you were ever wondering why you need to get title insurance when buying a house, this is the reason.
Title insurance protects against problems with the title. If the title company misses something in the search, title insurance protects the buyer and ensures that the title company will handle any resulting problems. Title insurance is purchased with a one-time premium payment paid at closing, so there are no monthly premiums to worry about, and you’ll be protected as a homeowner.
Can you conduct a property title search yourself?
You can conduct the property title search yourself; just understand that it’s going to be time-intensive. To do this, you must have the legal description of the property, which is not the address. The legal description is a written, recorded document describing the boundaries of a property, and it is usually prepared by an attorney.
Once you have the legal description, you’ll need to locate the courthouse where the property address information is located. You will need to go to the office and ask to see title and deed information for that property. In most circumstances, you cannot get this information from the office online and will need to physically go to the office. Take note of the owners’ names; you’ll need them later.
Next, you’ll need to look up the county assessor’s office with the property’s tax records. At the county assessor’s office, ask the clerk for tax assessment information for the property.
After that, find vital records for as many previous owners as you can. Vital records are recorded legal documents including birth certificates, death certificates, marriage licenses, and domestic partnership or civil union records.
Ensure that there are no missing heirs or other relatives who could have a claim to the property. Vital records can sometimes be found online, but you may have to visit or call a vital records office if you can’t locate them.
Finally, try to find out if there are any outstanding court judgments against any former owners. You can usually access court dockets online for free, but you will likely have to pay to see related court files. Make sure that there are no liens or encumbrances on the property as a result of a court judgment.
Once you’ve gone through all of these steps, you should have all the information you need to determine whether or not you have a clear title.
Whether you choose to conduct your own property title search or have a title company do it for you, the information can make or break your home purchase. Make sure you have all the pieces of the puzzle in front of you so you can take the right steps forward.
Header Image Source: (Benjamin Rascoe / Unsplash)
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