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Title search: what it is and how it works

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If you’ve gotten to the title search phase of the closing process -- congratulations, you’ve almost made it to the end of the road. But don’t celebrate too much--the title search has the potential to derail your contract based on its findings.

 For this reason, it’s essential to understand the ins and outs of the title search process so that you can successfully make it to closing and finally get the keys to your new home. 

What is a title search?

A title search is used to confirm that the seller of the property is, in fact, the property’s rightful legal owner. When you’re dealing with highly valuable assets like property, you should always ensure that the seller has the legal right to be selling the property to you and isn’t hiding anything in the process. If not, you could end up losing the property or be on the hook for unresolved debts and liens. 

To confirm a clear title, public records are examined to confirm ownership and research any claims, liens, or debts that may be placed on the property. This can be a very intense process that requires access to various public records databases and the scouring of tons of legal documents related to the property. 

Why is a title search necessary?

A title search is necessary to provide security to the buyer. For instance, the title search discovers an unpaid lien on the property that the seller didn’t even know about. In other cases, there may have been issues with wills or inheritances wherein the “seller” doesn’t have the legal right to sell the home. 

If these issues were discovered after closing, it could be disastrous for the buyer. Instead, a title search is performed to protect the buyer from title issues that could come back to haunt them. 

How does a title search work?

The title search process is very complex and thorough in providing the buyer with the most accurate findings. During a title search, the title abstractor searching will closely examine all relevant information and legal documents related to the property in question. The abstractor will scour through public records for things like deeds, county land records, federal and state tax clients, divorce cases, child support cases, bankruptcy records, and financial judgments. 

Based on that information, an abstract of the title is created to put everything in chronological order and make it easier to examine. The abstract of the title usually includes things like the current owner, any past owners, any easements on the property, past surveys of the property, and any relevant wills and lawsuits that involve the property. 

As you can see, there’s more to title searches than just liens and debts. A proper title search can make the buyer aware of previously unknown easements or encroachments related to the property that could cause issues in the future. A clear title search is your ticket to a successful closing. 

Who conducts a title search?

A title search is usually conducted by a title company that trains and employs workers to go through all the public records related to a property. A qualified attorney may also conduct a title search. 

While it is possible to conduct a title search yourself by accessing all of the necessary records, this process is best left to professionals that know where to look and what they’re looking for. After all, you could probably think of several better ways to spend your time than scouring through pages and pages of obscure legal documents. The money you’d save by doing the title search yourself probably isn’t worth the time, effort, and headaches. 

How long does a title search take?

A title search can take anywhere from a few days to a few weeks or longer, depending on the number of documents found and the number of sources involved. Generally speaking, title searches take longer for older homes that have frequently changed hands through the years since the goal of title searches is to go as far back as possible. 

If any issues come up during the title search process, you will enter into a curing period in which the parties involved will attempt to resolve these issues. Depending on what the issues are, the title company may be able to revolve them on their own without involving the buyer. 

How much does a title search cost?

A title search is a necessary cost associated with the closing process. The good news is that it’s relatively inexpensive when you consider the benefits that come along with it. Although the price of a title search varies depending on the type of property, the location of the property, and the complexity of the search -- you can generally expect to pay around $200 for a residential title search. However, you may pay as little as $75 or as much as $1,000. The cost will always be worth the peace of mind when it comes to protecting your biggest investment. 

What problems could turn up on a title search?

In an ideal world, your title search would turn up “clean” every time. In reality, however, issues may turn up as a result of the search. There’s no limit to what could turn up during this process, but some common occurrences include things like:

  • Errors in public records as a result of clerical or filing errors.
  • Unknown liens against the property from unpaid contractors, child support, property taxes, etc. 
  • Unknown easements that allow others access to the property.
  • Building code violations.
  • Covenants, conditions, and restrictions (CCRs) against the property.
  • Bankruptcies that cause the current owner of the property to be unclear.
  • A pending or current foreclosure.
  • Missing heirs or undiscovered wills that affect the actual ownership of the property
  • Pending divorce proceedings that could affect the ownership of the property if a spouse wants to contest the transfer.

If any of these issues come to light during a title search, you need to decide what to do. The most obvious solution involves the seller paying the remaining debts to clear the title. However, this isn’t always possible, and that’s where things can get complicated. 

If the seller is unable or unwilling to pay off the debts needed to clear the title, the next move is up to the buyer. The buyer could agree to split the cost needed to clear the debts with the seller. In competitive markets, the buyer may agree to totally inherit all of the debts to handle on their own. In other cases, it may make sense for the buyer to walk away from the property if they are unable to come to an amicable agreement with the seller. 

What is title insurance and why is it necessary?

But what if something slips through the cracks during the title search and comes up at a later date? This is what title insurance is for. Title insurance protects against future issues with the title that was undiscovered by the title company. Instead of the buyer being on the hook for these issues, it will be the title company. 

Title insurance is necessary to protect the buyer from hidden title issues during closing. While the exact cost of title insurance varies depending on your state and the value of your property, you can generally expect to pay around $1,000 for title insurance. This is a one-time payment that is completed at closing. 

While it’s understandable that you may be hesitant to shell out an extra $1,000 for title insurance when you’re also paying a whole host of other closing costs, it’s well worth the peace of mind that you won’t be on the hook for undiscovered debts down the line.   

The rundown on title searches

At the end of the day, title searches are a key component of the closing process that provides the buyer with the security they need to move forward. Although a title search can take time and money, it’s well worth the peace of mind it provides. At the same time, you should also consider purchasing title insurance that offers even greater protection for the buyer if the title search missed something.

It’s understandable that title searches, the closing process, and mortgages, in general, can be quite confusing for first-time homebuyers who are dealing with all of this for the first time. Title searches are just one part of the process, and there are so many other steps and terms that you should understand. Instead of feeling lost and confused, always feel free to reach out to the lending and mortgage experts at Vaster Capital for the expertise and guidance you need to buy the perfect home. 

 

Sources:

  1. Title Search | Investopedia
  2. Why You Need to Conduct a Property Title Search | Legal Zoom
  3. Title Insurance: Is It Required? | Forbes

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