One of the most critical documents in the home buying and selling process is the title report. Learn why title reports play such an integral role in real estate and how to read one.
“Title” refers to legal rights of ownership. Ownership is represented by a legal document, such as a deed, bill of sale, or certificate of title. Whoever has legal title can control or dispose of the property.
There are several ways title can be held:
- Sole ownership: One person has all the rights of an owner. Sole owners can occupy, lease, sell, and bequeath the property.
- Tenancy in common: Two or more people can jointly hold title. One example is in business where several partners purchase an investment property.
- Joint tenancy with rights of survivorship: In this type of title, two or more people jointly hold title, like in a tenancy in common. The difference is if a joint tenant dies, the deceased’s interest in the property automatically transfers to the remaining tenants. If only one joint tenant survives, the title becomes a sole ownership.
- Tenancy by the entirety: In this form, a married couple is treated as a single entity so each individual is entitled to 100 percent of the interest in the property.
Review of a property’s title, known as a title search, is a critical step in any home buying process. If you are buying a home, you want to be sure the person selling to you actually has the legal right to sell the property. As much as possible, you want to prevent any future questions of your ownership. You also want to avoid the burden of paying past owners’ debts. The title search will identify any issues in the chain of title, such as liens and judgments, problems with the legal property description, and other issues that could interfere with the transfer of ownership. About 25 percent of all residential real estate transactions have issues with the title that title professionals resolve before closing.
Additionally, most mortgage lenders and mortgage insurers require production of a title report. The results of the title search affect issuance of a title insurance policy, which protects the policy holder from financial losses due to defects in a property title. You likely will be required to pay for lender’s title insurance, which protects your mortgage holder’s investment in your property. You also can obtain owner’s title insurance to protect yourself and your interest in the property.
The title report should uncover any defects in title that could interfere in the transfer of ownership. Common title problems include:
- Errors in public records: Mistakes made in official documents, such as clerical or filing errors, could affect the validity of the deed.
- Property liens: Banks or other financing companies could place a lien on the property for unpaid past debts of prior owners.
- Illegal deed: If a prior deed was made by someone not legally entitled to enter into a legal document, the enforceability of that deed could be affected. A deed could be illegal if made by a minor, someone not of sound mind, an undocumented immigrant, or someone reported as single who actually is married.
- Heirs: Sometimes heirs are unknown or missing at the time of a property owner’s death. Family members could contest the will to establish property rights.
- Forged documents: Forged documents affecting property ownership could be filed within public records that obscure the property’s rightful ownership.
- Encumbrances: A third party might hold a claim to all or part of the property, limiting the use of the property.
- Boundary disputes: Surveys might exist that show different boundaries of the property.
- Undiscovered will: The state sometimes sells a deceased property owner’s assets if that owner dies with no apparent will. However, if a will is discovered in the future, property rights can be jeopardized.
- Impersonation: If you buy a home once sold by someone falsely impersonating the property owner, then your legal claim to the property is at risk.
- Building code violations: Discovery of unresolved violations could affect a title.
Though you could conduct a title search on your own, doing so is not recommended. A title report is best prepared by an experienced title officer, title company, or attorney who knows what information to review, where to locate documents, and how to interpret the content of those documents. A preliminary title report might be provided by the seller, but the buyer or buyer’s lender commission completion of the full title report, typically once the property is in escrow.
Documentation that relates to the property, its ownership, and the owner are reviewed to determine the chain of ownership and to locate possible issues with the title. Public records are the source of information. Specifically, information reviewed could include:
- Property deeds filed with the county
- County assessment records
- County land records
- Divorce cases and settlements
- Bankruptcy court records
- Tax lien records
- Street and sewer assessments
- Land surveys
- Court filings
- Tax search
Title reports contain crucial information about the property, current ownership, and possible issues discovered related to ownership.
This section of the title report typically details the scope of the title search, title insurance policies to be issued, the full names of the current owners, and the type of land interest, such as fee simple.
Schedule B lists the encumbrances and exceptions that affect the property.
An encumbrance is any claim, lien, interest, or liability that attaches to the property, but does not necessarily prevent transfer of title. Some encumbrances that might bind all current and future ownership rights include: easements, restrictive covenants and restrictions, water or mineral rights, and property setbacks. Encumbrances that affect the current ownership and need to be released before the sale or they pass to the new owner include: mortgage interests, liens, and judgments.
Exceptions are those items tied to the property that will remain on record and transfer with the property. The buyer will receive a clear title except the buyer’s rights will be subject to conditions in those exceptions. Common exceptions include CC&Rs (covenants, conditions, and restrictions), recorded easements, leases, and homeowner’s association by-laws.
The legal description of the property generally is found in Schedule C. This description could take several forms, depending on how land records are documented in the local jurisdiction. The property description could be by lot and block, metes and bounds, partition plats, or subsections.
The real estate process, from start to finish is an intimidating process with a lot of moving parts. With LemonBrew, you know you will be taken care of along your entire real estate journey. Not only will we navigate the title search and review with LemonBrew Abstract, but we will match you with your perfect, local real estate agent and help you find the best mortgage options for you. For everything real estate, get started today!