A title search is an early warning system for buyers and lenders. It reveals flaws the owner must resolve prior to a closing or refinance request. This allows the owner to clear any issues on the title so that the process can move forward. Also, it protects the buyer or lender from assuming an obligation they aren’t responsible for.
A chain of title exists in the public records. It shows the history of property title transfer from each previous owner to the next. Unfortunately, these searches are labor intensive and require a specialist called a title examiner.
The search may take the title examiner back to a time when property laws were much different. Technically, only 40-60 previous years are required, but this may omit important information on older properties. Therefore, title examiners typically go back to the original owner.
The second step involves a search of tax records to ensure there are no unpaid taxes that could result in a tax lien on the property. The local municipality could hold buyers responsible if the taxes aren’t paid prior to the closing.
If the title insurance is for a refinance loan, the lender often orders an inspection. The inspector examines the property to investigate whether there are any encroachments or other defects that affect the title. They also verify the lot size, note unrecorded easements and then mark the location of improvements.
Judgment decrees, liens and unpaid federal taxes entail a claim on the property that supersedes a lender’s or buyer’s rights. Therefore, if discovered judgments create a cloud on the title, the current owner must resolve them before the transfer of title to the buyer.
The lender or buyer and seller can proceed with the closing after all defects have been cleared. However, the title company won’t issue a commitment to insure the property if clouds remain on the title.
Understanding how the title process works can make the closing process easier and might make buyers a little more patient while waiting for the title commitment to arrive.
Your trusted real estate agent and home mortgage professional will be there to guide you through the process and help you communicate effectively with your lender. These partnerships can be a key element in your successful transaction.