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You've decided to purchase a home and hope to take
possession as soon as possible. The terms have been agreed upon and all the
financial arrangements have been made. But- there's one more important detail
to be handled. Before the transaction can be closed, a title search must be
made.
A title search is a means of determining (by examining the public records)
that the person who is selling the property actually has the right to sell
it and that the buyer is getting all the rights to the property (title) for
which they are paying. In addition to determining who owns the right to the
property, the title search will determine what limitations to ownership exist-
such as encumbrances or easements. In most real estate transactions today,
an Owner's Title Insurance policy is purchased to assure the buyer that they
have purchased a valid title. Once an Owner's
Title policy is issued the title company will, at its own expense, defend
the title against any claims.
But what, exactly, is involved in a title search?
Chain of Title
First the chain of title is examined. This is simply
a history of the ownership of the property. It states who bought it, who sold
it and when.
Tax Search
A tax search is completed to determine the present
status of the general real estate taxes and assessments against the subject
property. The tax search will reveal if the taxes and assessments are current
or delinquent and in what amounts. Any taxes or assessments which are due
and are as yet unpaid or which are delinquent represent a lien or claim on
the property which take priority against any other lien holder. A buyer purchasing
property with delinquent taxes or assessments is likely to discover that the
taxing authority has placed the property up for sale to satisfy these delinquencies.
An Owner's Title policy protects the buyer against loss from unpaid and past
due taxes and assessments.
Judgment and Name Search
One of the most important parts of the title search
is to determine if there are any unsatisfied judgments against the seller
or previous owners which were in existence while they owned the title. A judgment
is a general lien against the subject property which constitutes a security
interest for any monies owed by the property owner as derived from the judgment.
Just as with delinquent taxes the taxing authority can force the subject property
to be sold to satisfy the judgment. Additionally, if the seller has a common
last name such as "Smith" it is important to be certain that any
claims against "Smith" are not claims against the seller. If a judgment
is discovered which constitutes a defect in the title the seller must eliminate
it before the title of the new buyer can be insured.
The purpose of the search is to protect the buyer by finding and curing any
defects in the title prior to closing. Only an Owner's Title Insurance Policy
can protect you from unforeseen claims such as these.
Commitment
When these searches have been completed, the title
company issues a commitment to insure, stating the conditions under which
it will insure the title. The buyer, the seller and the mortgage lender can
proceed with the closing of the transaction after clearing up any defects
in the title which may have been uncovered by the search and examination.
The mortgage lender is as concerned as the buyer about the quality of the
title because the property is to be security for the new mortgage loan. The
lender requires assurance that it has a valid mortgage lien on the property.
This is not only common sense, but generally is a legal requirement of regulated
mortgage lenders.
The lender's title insurance, however, doesn't protect the new buyer of the
property. Although the land is the same, the interest of the buyer and the
interest of the lender are very different. The provisions of a lender's title
insurance policy are very different from those of an owner's policy, so the
buyer should obtain their own policy.
© 2006 Service Title Agency. All Rights Reserved.