You've
decided to purchase a home and hope to take possession as soon
as possible. The terms have been agreed upon and all the financial
arrangements have been made. But there's one important detail
remaining. Before the transaction can close, a title search
must be made.
The most accurate description of title is a bundle of rights in real property.
A title search is the process of determining from the public record
just what these rights are and who owns them.
A title search is a means of determining that the person who is selling
the property really has the right to sell it, and that the buyer is
getting all the rights to the property (title) that he or she is paying
for.
The search process can be undertaken by the title company in those
jurisdictions where the company maintains offices. In some areas, however,
searches are made only by practicing attorneys. However the search is
performed, in most real estate transactions today a title insurance
policy is purchased to assure the buyer that he or she has purchased
a valid title.
In those transactions where title insurance is involved, the title
company must determine insurability of the title as part of
the search process. This leads to the issuance of a title policy,
which insures the existence or nonexistence of rights to the
property.
The title insurance company will, at its own expense, defend the title and
will pay losses within the coverage of the policy if they occur.
But what exactly, is involved in a title search? The following is
a step-by-step review:
This is simply a history of the ownership of a particular
piece of property, telling who bought it and sold it, and when.
The information may be derived from public records - usually a
County Clerk's or Recorder'sOffice - or obtained from title plats
privately owned and maintained by title companies. There are great
varieties of such plats - index cards, punch cards, tract books,
even sophisticated computerized plats. However, they all contain
essentially the same information from which the history of the
title may be secured.
What is a Tax Search? This is a search to determine the present status of general
real estate taxes against the property. The tax search will reveal
if taxes are current or whether any taxes are past due and unpaid
from previous years. In addition, the tax search will indicate
the existence of any special assessments against the land and,
if so, whether or not these assessments are current or past due.
A due and unpaid tax or special assessment is a prior lien or claim
on the property above all others. If a buyer purchases property with
unpaid and past due taxes or assessments against it, he or she is likely
to find a government body - the village, county or state - placing the
property up for sale to pay those taxes or assessments. A tax search
reveals the status of the taxes. Title insurance protects the buyer
against loss from unpaid and past due taxes and assessments.
In many places the title insurance company sends inspectors
to look at the property to verify the lot size, check the location
of improvements, look for evidence of easements that are not shown
of record and check on who is living there.
The purpose of this is to supplement the information learned from
the title search. In the eyes of the law, any buyer of real estate is
assumed to have notice of all matters properly shown in the public records
as to that real estate as well as any information that an actual inspection
may reveal.
If the inspector detects an unrecorded easement or other evidence
of outstanding rights that could affect the owner's title and
possibly the value and intended use, the company tells the buyer
of these things before he or she closes the purchase. Those
matters must then either be disposed of or shown as exceptions
in the title insurance policy. Sometimes when an acceptable
survey and appropriate affidavits are received, an inspection
will not be made.
One of the most important parts of the title search is to
determine if there are any unsatisfied judgments against the seller
or previous owners which were in existence while they owned the
title. A judgment becomes, by statute, a general lien against
the debtor's real estate, which then will constitute additional
security for any money owed under the judgment. The real estate
can be sold to satisfy the judgment. Generally, in order to satisfy
the borrower's lender, the title company will make the same search
for unsatisfied judgments or past-due obligations against the
buyer. This portion of the title search is a part of the due-diligence
process.
It is extremely important to be sure that a title is not subject to judgments
against the seller or previous owners. Title insurance provides this
protection. A judgment against a person named Smith may affect the title
of a seller named Smith, depending on whether or not they are the same
person. So all possible variations of the name must be examined.
For example, the name Smith might be spelled Schmidt, Schmid, Schmidtt, Schmidz,
Schmied, Schmiedt, Smid, Smythe, and so on. The name Nichols can be spelled
73 different ways, from Nachols to Nychals. The task is to determine which of
these applies to the owner in question. First names have to be checked, too.
There are 25 foreign forms of John, including Johann, Jehan, Hans, Shaun, Gudi,
and Efom.
Rights established by judgment decrees, unpaid federal income
taxes, and mechanic's liens all may be prior claims on the property,
ahead of the buyer's or lender's rights. If a judgment is discovered
that constitutes a defect in the title, it is pointed out, and
the seller must then eliminate it before the title of the new
buyer can be insured free and clear of that judgment.
Additionally, a title insurance company will review all leases
or contracts to which a buyer might be a party. They want to
be certain that you, as their new insured, do not have unrecorded
or imminent liens arising from such things as a past-due obligation
under an existing apartment or automobile lease. Such searches
will always include VOL's (Verification of Lease) from the current
landlord or automobile dealership, as revealed on a loan application
and/or credit report.
When these searches have been completed, the title company
issues a commitment to insure, stating the conditions under which
it will insure the title. The buyer and seller and the mortgage
lender can proceed with the closing of the transaction after clearing
up any defects in the title which may have been uncovered by the
search and examination.
The mortgage lender is as concerned as the buyer about the quality of the
title because the property is to be security for the new mortgage loan. The
mortgage lender requires assurance that it has a valid first (or another acceptable
priority) mortgage lien on the property. This is not only common sense, but
generally is a legal requirement of regulated mortgage lenders.
The lender's title insurance, however, doesn't protect the new buyer
of the property. Although the land is the same, the interest of the
buyer and the interest of the lender are very different. The provisions
of a lender's title insurance policy are very different from those of
a buyer's policy, so the buyer should obtain his own policy, often issued
simultaneously with the lender's policy.
