Congratulations, you got an offer on your home. Although this is the right time to for a deep sigh of relief, its not yet time to pop open the champagne.
Selling a home is a process, and there are still several potential pitfalls on the way to closing.
One that is seldom discussed is the Title Report. “Knowledge is power” is a saying that applies perfectly to every real estate transaction – so let’s walk you through the Title Search process.
What is “Title” anyway?
The word “title” in real estate refers to the party who hold legal ownership and, thus, the right to use and dispose of a property.
The word is used in the same way when it comes to your car. When you sell your car, you’ll be signing the title over to the buyer.
But, what if you aren’t the true owner of the home, yet you’re attempting to sell it?
This is where the Title company, or attorney comes into play; they performe the Title search by looking through public records to ensure that that no other party has a claim to it.
Once they’ve assured that you are the owner, they will issue a title insurance policy to the lender and the new owner, to protect them against future claims against the property.
Title Search issues
“Title companies report that in more than one-third of all real estate transactions they must undertake ‘extraordinary work’ to address title issues,” according to Sandy Gadow in the Washington Post.
Title search work involves looking far back into the public records, at divorce proceedings, bankruptcy filings, old deeds, wills and tax records.
If they find an issue, regardless of how insignificant it may seem, it becomes what is known as a “cloud” or “defect” on the title and it must be cleared before the sale of the home can be finalized. Some of these issues include:
- Unpaid property taxes
- Fraud and forgery
- Missing signatures on the title
- Previous owner’s heir making a claim
You can find a list of common title defects online, at firstam.com.
Dealing with clouds on the title
When the title search is complete, the title company issues a Preliminary Title Report. In it, you’ll find information about the ownership of the property and any outstanding liens and encumbrances against it.
The report provides the seller the opportunity to not only learn about previously unknown defects in the property’s title, but to cure them as well.
After all, no sane buyer will want to continue with the purchase of a property with title issues.
Note that the Preliminary Title Report may not list all existing liens and encumbrances affecting title to the property.
It simply states those those the title search was able to unearth and the insurance company will exclude these from coverage in a subsequently issued title insurance policy, unless they aren’t remedied.
Think of it as an “offer to insure,” according to the California Land Title Association.
Sellers need to carefully examine the preliminary report and, working with their agent or attorney, take action to clear up any problems.
One of the most common problems title companies find is a Mechanic’s Lien. These are placed on a property by a general contractor before starting a rehab or other home improvement project (to ensure he or she is paid). Ideally, the contractor will release the lien upon payment for services. But, unfortunately, contractors often neglect releasing the lien. While it’s typically not difficult to resolve this title defect, it does take time, so the closing date may have to be extended.
If the title search doesn’t find any problems, or you clear up those that have been found, the title company will issue a title insurance policy.
Unlike other forms of insurance, title insurance only requires one payment, at closing, and it lasts for the life of ownership, for that particular owner.
Please feel free to reach out to us if you have any questions about the title insurance process or anything else real estate-related. We’re happy to answer questions.
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