Title Searches: Little Known, But Oh So Important for Homebuyers
You wouldn’t adopt a dog or buy a used car without first learning about its history, would you? Of course not. You’d look at the shelter’s records on the pup, or have the car dealer pull up the vehicle history report. You’d want to make sure you were making a good investment with your time and money, and that the purchase (or new addition) were safe long-term bets for your household.
A title search provides that same type of safety net in home buying. And in the grand scheme of things, it might just be the most important part of the process — at least from a legal standpoint.
What Is a Title Search?
Put simply, a title search is a background check on a property. These searches are conducted by entities called title companies, and the goal is to make sure the home is legally available for purchase before a lender loans you money for it.
Essentially, a title search aims to ensure there is nothing in the property’s history that could prevent you from buying it. This would include things like:
- Non-executed wills from previous owners
- Unfound heirs to the property
- Ex-spouses or co-owners who may have a claim to the home
- Unpaid mortgages or property taxes
- Liens against the property
- Restrictions, leases or easements on the property
- Any other full or partial claim to the property
When you go to purchase a house, your lender will require that a title search be conducted. Though the lender technically requests it, it actually benefits you both and protects both parties’ interests in the long run. On the lender side, it ensures they can legally sell the property and get their money back should you default on the loan, and for you, it gives you the legal ability to purchase the home and have legitimate ownership of the property.
How the Title Search Works
To conduct a title search, the title company will pull up all the past property records, deeds, and titles for the home you’re interested in buying. They may also conduct a property survey to determine the exact boundaries of the property, as certain encroachments or easements on the land could have an impact on ownership as well.
Next, the title company will summarize their findings in an “abstract of title.” This will detail the home’s ownership history and any potential issues found. Finally, they will issue the title opinion letter, stating whether the home’s title is valid and able to be purchased.
What Is a Title Company?
A title company is an organization that conducts these title searches — these thorough examinations of past ownership records and claims to properties. Title companies also issue what is called title insurance once the title search has been conducted.
In many cases, you’ll go to your title company to sign your closing papers and get your keys. Your title company may also maintain your escrow account, which contains all the funds used to close on your home — things like the earnest money deposit, down payment, settlement costs, closing costs, etc. When all is said and done, the title company will transfer the funds and file all the new deed and property title in your name.
What Is Title Insurance and Why Is it Important?
Title insurance is designed to protect you and your lender from anyone who might claim ownership of the property or dispute the title down the line. You’ll pay fees for your lender’s title insurance policy at closing. You might also pay for your policy at closing, though in some cases, the sellers will purchase this on your behalf as sort of a sign of good faith.
These policies essentially say the title company has evaluated the records, determined that you have the full right to purchase the property and that no one else can try to claim it or take it away from you in the future. The policy covers any legal fees that might crop up should someone try to claim the property later on.
More on Title Companies
Though most real estate agents and lenders have preferred title companies they like to work with, you have the right to choose the company you use. As with anything in the home buying process, it helps to shop around before choosing which company to go with.
Generally, you want a title company with deep, local experience, and great customer service. You will also want to look at the difference in title insurance rates and how the costs measure up from provider to provider.