January 23, 2018

What is a Title on a Home?

Title on a Home

“Title” refers to ownership of any property, but it’s most commonly used to refer to ownership of real estate and vehicles. “Title” is sometimes used interchangeably with “deed,” which is the actual document that transfers title from one person to another.

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There are different ways to hold title of real property, including:

Sole Ownership – In this situation, one person holds all of the rights to the property. This makes transferring ownership or encumbering the property (e.g., with a mortgage or easement) quite easy.

Joint Tenancy – In a joint tenancy, two or more owners have equal rights to the property. Upon the death of one owner, ownership passes to the surviving tenants. To transfer the property, all of the owners must agree, although the property can be forcibly divided by one owner’s creditor to collect a debt or judgment.

Tenancy in Common – As with a joint tenancy, two or more owners have equal rights to the property, but those rights are held separately so that each owner may transfer or encumber their share without the others’ permission. Ownership of property held in a tenancy in common can be willed, although all liens must usually be cleared prior to the total transfer of the property.

Tenants by the Entirety – This type of ownership applies only to married couples, who are essentially treated as one person for the purpose of ownership, i.e., the property cannot be subdivided. Both spouses must agree to any transfer, and ownership automatically transfers to the survivor upon one spouse’s death. Tenancy by the entirety should convert to a tenancy in common upon divorce.

Thinking about buying a new home? Use our home purchase calculator to see what you qualify for and start your loan application with confidence.

Title to real property may also be held by entities such as corporations, partnerships, and trusts. You should always check with a tax and/or legal professional to determine the best way for you to hold title to the property you are purchasing, since options and implications vary by jurisdiction.
When you’re buying a property, you need to be wary of defects in title that may impact your ownership. Common defects include:

Unknown owners – For example, the property could be owned by a brother and sister, but the brother purports to have sole ownership and transfers the property without his sister’s knowledge. At a later time, the sister could contest your ownership of the property, since she never agreed to the sale.

Liens – This category includes any loan that uses the property as collateral, such as a prior mortgage. It also includes unpaid property taxes.

Covenants – A covenant is a specific right to the property that can be relinquished. For example, a prior owner may have agreed to allow a neighbor access to a path on the property in perpetuity, but you might not realize the covenant exists at the time of your purchase.

There are several ways to protect yourself when it comes to title. The first is to put a contingency in the sales contract that allows you to terminate the sale if the seller does not have clear title to the property.

The second is to hire a company to perform a title search, which should verify the current owner of the property and any encumbrances that might exist. If you are taking out a mortgage to purchase the property, the lender will require a title search.

The lender will also require that you pay for title insurance, which will protect the lender in the event that a defect in title is discovered after the purchase is complete. However, that insurance will not protect you, the borrower. Instead, you can ask the seller to purchase title insurance for you, or purchase your own title insurance prior to closing the sale.

Thinking about buying a new home? Use our home purchase calculator to see what you qualify for and start your loan application with confidence.

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