Although it is important for homeowners to conduct a title search, this process is paramount for buyers.
Buying and selling a home is a complicated process for anyone, regardless of where they are in the transaction. Due to the complexity, it is easy to lose sight of the importance of some documents, especially if you do not have a real estate agent to guide you. For this reason, we are going to explain what the property title is and why it is so important when purchasing or putting a home on the market.
The resulting property and lien report is made up of documents that determine whether or not the property is free of liens and pending judgments, and whether title to the property is accurately represented by the seller. A clean title search means that the buyer and lender agree that there are no claims on the property that could become an issue after ownership is transferred.
“Looking for title is typically done after a real estate purchase offer has been accepted,” David Zawadzki, senior account executive at Proper Title, tells Realtor.com. Among the title documentation, multiple sources are searched, including deeds, county land records, federal or state tax liens, divorce cases, bankruptcy court records, and other financial judgments against an owner that could be tied to a property.
A property title search is important for both buyers and sellers. Homeowners who want to sell their home must have what is called “marketable title.” This legal term basically means that there are no defects that could cause a lawsuit or someone to challenge your right to own the property. Although it may not seem like it, many properties have title defects that not even the owners themselves know they had.
On the other hand, searching for property titles is vital for buyers. In addition to determining who actually owns a property, they also ensure that all existing liens, loans, child support, and judgments are disclosed and addressed prior to escrow closing. If liens or judgments are not discovered before closing, the buyer may face complicated and costly problems 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, it becomes the obligation of the new owner,” said Jeffrey A. Hensel, associate broker at North Coast Financial in San Francisco. Diego, at realtor.com.
The title search is usually ordered during escrow when a home financing lender requests a preliminary report from a title company. However, anyone can search at any time, such as a buyer (who may not need a lender’s money) or a homeowner looking to refinance their home.
The cost of searching, as well as title insurance premiums, vary by state, but are based on the amount of the loan and the purchase price of a property. For a ballpark figure, basic tract searches start at $150, Zawadzki says. And a full property and lien report typically costs less than $1,000.
Title searches are included in the title insurance policy and are typically paid for as part of the closing fees.