Everyone who owns a piece of real estate has a critical right — the right of conveyance. Put simply, this is the right to sell the property to someone else. In some ways, this right is what really transforms a resident into an owner, and is perhaps the most important part of a real estate transaction to make sure goes smoothly.
After all, what is a real estate transaction if the property was never the owner’s to sell in the first place? Anyone can hand over the keys to your new home — but only the owner can give you the right to live there.
A title search is the part of the sales process that ensures that the seller actually has the right to convey the property in question, free and clear of any defects, encumbrances, or third-party claims. It is an important part of the real estate transaction, and there are many different aspects of the title search that are important for buyers and sellers to be aware of — including what goes into the title search, and who will be responsible for performing the title search and issuing the necessary summaries and reports during a real estate transaction.
What Goes Into a Title Search?
Performing a title search is an important step in the real estate transaction. A title search is necessary for sellers to prove that they have clear and marketable title to sell the home, while providing buyers with invaluable information about their new investment that could affect the sale, or crop up years down the road. It is also the first step in ordering title insurance, which is a crucial protection for the buyer and the lender from issues affecting ownership that are not discovered until after closing.
Given how vital it is to a successful real estate deal, you would think that a title search would be a straightforward, simple process where anyone could easily confirm the status of an owner’s title and right to convey. After all, we live in the information age! What could be so difficult about providing quick and easy reference to public records?
Of course, as anyone who has ever bought or sold a home knows, this expectation doesn’t actually line up with reality. A title search will involve combing through a wide variety of sources, including but not limited to “deeds, county land records, tax liens on the federal or state level, divorce cases, bankruptcy court records, and other financial judgments against an owner that could potentially attach to a property,” as Realtor.com has noted.
Knowing where to look for unpaid property taxes, mechanics’ liens, easements, unpaid judgments, gaps in ownership, or other property restrictions requires specialized expertise and a diligent and thorough process.
Most real estate deals will require an independent title search, but even in the rare instance where one is not required, it is still vital that one be performed. Among other items, the title search will generate a report that includes:
- The legal description of the property, including the parcel number, to ensure that the seller does, in fact, own all of the property being transferred.
- The chain of title extending back some period of time, usually 30 years, to ensure that there are no gaps in ownership during which an unrecorded transfer might have taken place.
- Mortgage information for the current owner
- Judgment liens against the owner that have been levied against the property,
- Mechanic’s liens for work performed where payment has not been made
- Federal or state tax liens against the property
- HOA liens
- Easements, in which another entity or the public has the right to make use of some portion of the property for a limited purpose
The title search will ultimately determine whether the seller has the right to actually sell the property; whether or not there are any restrictions on the owner’s ability to use the land; and whether there are liens on the property that must be resolved at or before closing.
Who Performs the Title Search?
Now that we’ve discussed what goes into a title search, we can explore another common FAQ – who are some of the parties involved?
Who does the search varies by jurisdiction and the nature of the property transaction. Generally speaking, this person is known as the title agent.
As one example, in Illinois both the seller and purchaser are required to engage attorneys for real estate transactions. As a result, the title search is performed by a licensed real estate attorney, acting as the title agent. This approach has significant advantages for both buyer and seller. The buyer and seller’s attorneys can communicate about any potential title defects or issues, ensuring that any potential issues are cleared up quickly and that any outstanding issues may be negotiated before the close of sale.
In other states, the title agent may be an independent subcontractor employed by a title company. They may or may not be the same as the escrow agent or settlement agent, who facilitates and runs the closing process.
Generally speaking, the title agent will perform a few crucial functions, including performing the title search, submitting a report or abstract, and then issuing a title letter or title commitment, which indicates whether or not the title is valid and allows the sale to proceed. Once this process has been completed, the title agent will help the parties in the transaction select buyer’s and lender’s title insurance policies, which are underwritten by a title insurance company.
Finally the title agent will often play the important role of collecting, managing, and distributing the various funds involved with the transaction. They may also help coordinate closing documents and file paperwork — such as new deeds or title documents — during escrow and after the close of the sale.
Title Insurance: Protecting Your Interest In Your Investment
Once the title report is obtained, the next step is making sure that the new owner’s interest is protected against any claims that might have been missed in the search. That’s where title insurance comes in.
Two title insurance policies are part and parcel of most real estate transactions: the owner’s title insurance policy and the lender’s title insurance policy.
The owner’s policy is provided to the purchaser to protect against post-closing claims against title that might arise. The lender’s policy protects the mortgage lender’s priority as a creditor in the event of a claim against the property’s title. In Illinois and Wisconsin, the seller pays for the owner’s policy, and the buyer pays for the lender’s policy. These insurance policies are part of the “closing costs” associated with the escrow and home sale closing process.
Title insurance will generally insure against unknown claims against title, including claims arising from fraud, forgery, recording mistakes, or claims from missing heirs or owners. Other claims, including known easements or other restrictions and some known liens or debts, will be identified prior to closing as “Exceptions” and will be explicitly excluded from the insurance coverage. It is critically important for purchasers to carefully review the terms of their title insurance policy with an attorney or other representative to make sure that they understand what it does and does not cover.
Learn More from Your Trusted Title Insurance Company
At Landtrust Title Services it’s all about the relationship. Our empowered title services team encourages responsive underwriting and provides a single point of contact to keep your deal moving, so it’s delivered on time, regardless of complexity. We partner with you, align with your goals, and provide a seamless process to ensure a smooth transaction.