February 1, 2018

What is a title search?

What is a title search

When it comes to real estate, “title” refers to ownership of property (although it is sometimes used to refer to the actual document that shows who possesses title). In other words, the person who has title to the property is the property’s owner. A “title search,” therefore, is a search of a property’s ownership.

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Title Search Required

If you are taking out a mortgage to purchase a property, the lender will require a title search. This is because the lender has a strong interest in ensuring that the seller of the property has the right to sell it, and therefore, once the purchase is completed, you’ll have proper title to the property. Since the property serves as collateral for the mortgage, the lender wants to ensure that in the event you stop paying back the loan, the property can be sold off without someone else claiming an interest in the property.

A title search should verify the current owner of the property and any encumbrances that might exist. A full title search should reveal the current owner, how title is held (e.g., sole ownership or joint tenancy), a legal description of the property, and any encumbrances, such as a mortgage, lien or covenant. The search may also trace the transaction history of the property. For some transactions, such as a refinance, a limited title search may be sufficient.

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Common defects uncovered by a full title search include:

Owners who have not sold or are not selling the property – For example, two siblings might inherit real estate from their parents, and then one sibling might pretend to have sole ownership and sell the property without the other sibling’s knowledge. The sibling who was unaware of the sale could contest the transfer of the property since it was done without his or her permission. Such a defect would most likely prevent the completion of sale, unless the owner who was not the seller agrees to relinquish his or her claim.

Liens, such as a mortgage or unpaid property taxes – Liens typically do not prevent the the sale of a property. However, they generally must be paid off prior the completion of the purchase in order for the sale to be finalized. Usually, the seller will be responsible for paying off existing liens, although the buyer may take them on as an incentive to sell.

Covenants – A covenant is the relinquishment of a specific right to a property. For example, suppose a previous property owner agreed to allow his neighbor access to a path on the property in perpetuity. A subsequent owner might not realize the covenant exists at the time of purchase.

In sum, the main reason to conduct a title search when purchasing a property is to ensure that the person you are buying the property from has the right to sell the property to you. You certainly wouldn’t want to pay someone hundreds of thousands of dollars, only to have someone else appear and claim to be the rightful owner of the property.

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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