What is a property title search? When you buy or sell a home, a property title is essentially a fancy way of saying who has the right to own the property—and thus, to sell it.
While it may seem straightforward that a home seller owns his house, there could be hidden claims or liens on the property the homeowners themselves may be unaware of, making a title search essential for both buyers and sellers. Here's a rundown on everything you need to know about a property title search.
What is a property title search and how is it done?
The property title search is generally done after an offer to purchase real estate has been accepted, says David Zawadzki, senior account executive at Proper Title. Multiple sources are searched, including 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.
The resulting Ownership and Encumbrance report is composed of documents that determine whether or not the property is free of liens and pending lawsuits, and if title ownership is accurately represented by the seller. A clean property title search means the buyer—and lender—agree there are no claims on the property that could become an issue after ownership is transferred.
Why are property title searches important?
For sellers: To sell your property, you must have what is called "marketable title." This legal term basically means that there are no defects that might cause a lawsuit or someone to challenge your right to own the property, says Michael Redden, an attorney in Minnetonka, MN.
Defects could be someone else claiming title to the property, a claim that the seller never owned it or a wild deed (where someone buys the property but doesn't officially record the title). Many properties have defects on a title.
For buyers: Property title searches are a vital step in the home-buying process. Besides determining who truly owns a property, they also ensure all existing liens, loans, child support, and judgments are disclosed—and dealt with—prior to the close of escrow. If liens or judgments aren't discovered prior to closing, the buyer can face messy and expensive issues down the road.
For example, if the seller has a $10,000 judgment against them and the property was purchased without the judgment being paid off, it becomes the obligation of the new owner, says Jeffrey A. Hensel, broker associate at North Coast Financial in San Diego.
The title search is also the first step in determining a title company’s ability to insure a transaction, says Zawadzki. Title insurance provides protection for the seller and lender in the event liens or encumbrances are discovered after closing.
Who performs a property title search and when is it done?
A property title search is typically ordered during escrow when a lender financing a home purchase requests a preliminary report from a title company. However, a search can be done anytime, by anyone, such as a buyer (who might not need a lender's money) or a homeowner who's looking to refinance their home.
Can you do a title search on your own? And if so, how?
Doing a title search is a process few people will undertake themselves due to the number of documents that need to be reviewed, says Zawadzki. That said, it is possible for a home buyer to search for liens on a property as well as judgments pending against the seller as an individual.
First, you need a property's legal description (this is not the address but what is written on the deed to describe a property), often found on a property's tax statement.
"Take that information to your county Recorder's Office or Office of the Examiner of Titles, and tell them that you want to get public access to records," says Redden. A staff member will usually take you to a computer terminal and help you look up the chain of title, which is normally included on what's known as the Tract Card.
Redden cautions that the staff at these agencies won't give you legal advice. So it'll be up to you to parse the status of the title from the research you do. And remember, there is always a chance for liens not being represented in the documents you find.
How much does a property title search cost?
The cost of the search, as well as the premiums for title insurance, vary by state, but are based on the loan amount and the purchase price of a property. For a ballpark figure, basic tract searches start at $150, says Zawadzki.
And a complete Ownership and Encumbrance report is usually under $1,000, says Redden. Property title searches are included with the title insurance policy and are typically paid as part of the closing fees.