As a realtor, you know how important clear title is to make transactions go smoothly. But you may feel sometimes that you’d like to get a better understanding of how it works.
Toward that end, here’s a quick tutorial on property titles.
What is a property title?
The title legally defines the rights and ownership of property. “Title” doesn’t refer to a single, physical document, though the title information is contained in a document. Instead, “title” is a concept that spells out the assorted rights one has with their property – and sometimes restrictions if a homeowners association is involved. Rights include Right of Possession, Right of Control, Right of Enjoyment, among others.
Other restrictions can include liens or easements on the property that prevent the owner from selling it.
Titles can be sole ownership, community property (in select states), joint tenancy, tenancy in common and other variations.
Chain of title
This is the ownership history of the property. When you hear about a title company performing a “title search,” they’re referring to the process of scrutinizing a title’s history, including the chain of title, to confirm the seller actually has the right to sell the property.
The title company performing the title search is also looking for information that might complicate or prevent the sale of the property. Common problems include liens related to unpaid taxes or outstanding bills for work performed on the property. Up to one-third of title searches uncover a problem, so this is a vital step.
Without the title search, the buyer could find themselves stuck with these financial liabilities, or worse, find themselves facing homelessness when an unknown heir arrives to take possession of their great-grandma’s house.
In rare cases, a title search will miss crucial problems due to filing errors, undisclosed heirs, conflicting wills, and even forgeries. Situations like this are why title insurance exists.
Title insurance protects you from the aforementioned surprise financial or ownership disputes that might come to light after the sale is finalized. If the title search somehow overlooked a $20,000 lien, the insurance protects you from having to pay it off.
A title is not a deed
A deed is the document that transfers title for a property when it’s sold and is kept on file with your county’s government. Again, the title itself is not a document; it refers to the legal ownership of the property.
If you encounter issues with title, you should reach out to an attorney that specializes in title disputes.