When a buyer approaches a mortgage lender for buying a property, it is imperative that the property has clear titles so that no legal issues arise later. In this regard, a becomes essential.
A title can be referred to as a bundle of rights for a real estate property and a title search would be the process of determining what these rights are and who they belong to. In other words, a title search is a search of all title records applicable to a particular property to determine if the current title is good. This search would determine whether the person who is selling the property holds the appropriate right, and the buyer is receiving all the rights to the property for which he or she is making payment.
The search involves going through title records for all matters affecting title. Title records are public records listing ownership, encumbrances, liens, and other similar factors. They include written documents, such as deeds and mortgages, tax, marriage, and probate records, and any other document that may affect the title of a property. These records are maintained by recorders of deeds, city/county clerks or clerks of court. Title records play a critical role in establishing the ownership of a property and help spot encumbrances that act as obstructions to clear titles.
Title search, therefore, provides early warnings to buyers and lenders as regards any title flaws that must be dealt with, before the property can be sold or refinanced. A title search is usually done by someone called the abstractor, examiner or searcher. The person’s responsibility is to summarize the information as an abstract of title, which would list all recorded documents chronologically from the start to the present time.
It would also list all liens and encumbrances along with their current status. It is also important to list all public records that were examined in writing such an abstract of title. You could have such a person in-house or outsource the process to an expert in title search. The steps involved in such a search are described below.
A chain of title can be described as the sequence in which historical transfers of title to a property have occurred. The “chain” would run from the present owner back to the original owner of the property (when the property came into existence).Usually, this information could be obtained from public records, available in the County Clerk’s or Recorder’s Office.
It could also be derived from title plants that are privately owned and maintained by title companies. These plants offer varieties such as index cards, tract books, punch cards and computerized data, even though all of them might contain essentially the same information about the history of the property. These searches are often labor intensive and complex. Title examiners might often be required to revisit a time when property ownership laws were very different from what they are today.
This could mean going back 70-100 years. This might be the reason why the Marketable Title Act was introduced. The Marketable Title Act says that the chain of title be complete only back to 40-60 years. This Title Act acts as a statute of limitations for potential claimants. The search usually starts with the current property owner and then proceeds using maps to conduct historical research. Maps can help visualize how a property has changed over time and whether the property under question may have previously existed within a larger tract of land.
Index books could be used to get a brief legal reference of the property. The index can be used to get the book and page reference for the documents pertaining to the property. This would help you focus on the right documents.
However, it must be noted that if the chain of title is incomplete, then there is a cloud on the title. This could mean that the present owner does not have a marketable title. The chain could be incomplete due to a deed forgery, or something simple like a previous owner using a different name from the name used in acquiring the title. The remedy for this would be a quiet title suit. In this suit, potential claimants would be brought to court and be required to establish that they have legal title to the land. If they are unable to do so, they will be disallowed from claiming any interest in the land later.
The second step in the title search process would be Tax search. This search would reveal the present status of real estate taxes against the property. One could find out if taxes are up to date or whether any taxes are overdue and unpaid from previous years. This search would also help determine if there are any special assessments against the land and whether they pertain to the present or past.
Unpaid taxes create a lien against the property. If a buyer purchases such a property, they might find the Government putting the property up for sale to pay those taxes or assessments. Note that if you take up title insurance it could protect you, as the lender, against loss from unpaid and overdue taxes and assessments.
Generally an inspection of the site needs to be ordered. The person who inspects prepares a report to reveal any encroachments or other matters which would ultimately impact the title. The inspector would also look at the property to verify the lot size, look for evidence of easements that might not be on record and check the location of improvements. Inspectors must also see whether anybody is living on that property. If an unrecorded easement or other evidence affecting the property title is noticed, the same is recorded and mentioned to the customer. If you take title insurance, these are shown as exceptions.
The purpose of inspection is to supplement information obtained from the title search. As a lender, it is assumed that you know all about the property.
It is critical that any unsatisfied judgments against the seller or previous owners be researched. It must be noted whether these were in existence while they owned the title. Judgment refers to a general lien against the property and consists of security for any money owed under the judgment. Remember that the property can be sold to satisfy the judgment. Rights due to judgment decrees, unpaid federal taxes, and liens have claims on the property and that would be ahead of the lender’s or buyer’s rights over the property.
If such judgments are discovered and they constitute a defect in the title, it must be noted and eliminated by the seller of the property before the title is transferred to the buyer. Title insurance can provide protection against such judgments.
You, as the lender, along with the buyer and seller can proceed with the closing of the transaction after clearing up any defects in property’s title, if any, uncovered by the search. When these processes have been completed, a commitment to insure would be issued.
By following these steps, it can be ensured that the title is clear of any defects or claims and will pave the way for a smooth deal.