What Does Title Mean?
Title, in the context of real estate transactions, refers to ownership of real property. A title is not synonymous with a deed. A deed refers to a property owner's right to claim a particular property.
The person who holds the title to a piece of property has legal ownership and the legal right to possess that piece of property. A defective title can result in problems establishing ownership, which can complicate resale and impair an owner's right to use their property.
This article explores real property title and real property title insurance.
Understanding Title in Real Estate
In every real estate transaction, the buyer and lender should get a title report before closing. A title report will identify any obstructions to the property's title.
Title companies search public records to determine the rightful owner of a property. The public records contain the history of everything on the title going back to the original owners.
Title companies perform a "chain of title search" to confirm the property's rightful owner. They then prepare reports based on that information. Title reports offer new owners peace of mind as they move forward with the real estate purchase.
The Title Report
A title report should contain the following:
- Ownership of the property
- The legal description of the property
- Any assessments on the property
- The existence of any covenants
- The existence of any encroachments
- The existence of any encumbrances
Title searches are not infallible. Title searches protect purchasers from errors or defects discovered after the real estate transaction closes.
Title insurance purchased from a reputable title insurance company can help with any defect in the title. There are many different types of title insurance. Buyers often get a title insurance policy to protect them if the title report is incorrect. Title insurance protects against any undisclosed defects in the title. A lender's policy or loan policy covers the mortgage title.
Title insurance helps remedy defects found after the real estate transaction has closed. Homeowners can purchase an owner's policy, while mortgage lenders can buy a lender's policy.
An owner's title insurance policy protects the new homeowner against defects in the title; a lender's title insurance policy covers the mortgage loan lender. Often the borrower pays a one-time fee for the lender's policy as part of the closing costs.
Title insurance pays for the cost of remedying any defects.
It is possible to make mortgage payments on the property for years and yet need a clear title because the deed had a defect or was improperly recorded. Some title defects include past ownership claims, liens, and easements.
Past Ownership Claims
A past ownership claim may arise if missing heirs exist. This is common when the title isn't transferred during the probate process.
A past ownership claim may exist through adverse possession. Adverse possession occurs when a person solely maintains a piece of land for an extended period as if it is their own. Their control of the land must be evident to everyone around.
In either instance, someone from the past could come back to claim title to the property.
A lien is an obligation on the title to satisfy a debt created through an agreement with the parties. A mechanic's lien ensures that a contractor who worked on the property gets paid. Other types of creditors can "attach" a lien to a property. This includes liens for unpaid taxes, child support, or surety on a loan.
The sale of a property requires the satisfaction of the lien first.
An easement is a right-of-way promise the original landowner or previous owner made with another party. One example of an easement is when a property owner gives a neighbor the right to use the field behind their house to access the woods.
Ideally, the deed should include the promise through its inception and for every subsequent sale. Another way to establish an easement is through continuous conduct, which wasn't reduced to writing. This is also known as an easement by prescription. Homeowners facing this issue should talk with a real estate attorney who can help you navigate local laws.
Buyer's Protections Against Title Defects
Homeowners have several options to protect themselves against title defects.
A title search during the home-buying process can miss some title problems. Title insurance can protect homeowners from financial issues resulting from undiscovered issues. The real estate agent can provide referrals for homeowners who want to purchase title insurance. Alternatively, the American Land Title Association offers a search feature for accredited title insurance companies.
Another way to protect yourself from a title defect is to ask the seller for a warranty deed. In a warranty deed, the previous owner warrants that they have a clear title. This means the title is free of any encumbrances.
Still Have Questions? Get Help From an Expert
Title issues can impact the rights to real property and a person's ability to sell it, creating significant financial losses. Since buying a home may be the largest purchase you make in your life, it's important to make sure you're doing everything possible to avoid problems down the road. An experienced local real estate attorney can help you protect your interests. Speak to a local real estate attorney today.
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