After your offer on a home is accepted, one of the necessary first steps is the title search. If you’re getting a mortgage, the lender will typically order it.
The purpose of a title search is to find any claims or liens on the property or other issues that would prevent the seller from having the right to sell it. The search, typically done by a title company, is important for both buyers and sellers, as the people selling the home might not be aware of certain issues.
A “clean” vs “defective” title
A thorough title search can include looking at state and federal tax liens, county land records, bankruptcy and divorce records, financial judgments and deeds. It may turn out that the seller doesn’t actually own the property. Occasionally, a “wild deed” will turn up. That happens when someone has purchased the property but never recorded the title. These are all referred to as “defects” in the title.
After the search is complete, the title company prepares an Ownership and Encumbrance report. If the title is “clean,” that means no one besides the listed seller has any ownership rights to the property or the right to sell it.
Some defects in a title can be dealt with by the seller so the sale can go through – presuming the buyer is willing to wait. For example, maybe a seller owes back child support, so the court placed a lien on their home. While sellers can pay liens or judgments to clean up the title, other issues (such as another owner) aren’t so easily resolved.
If liens and judgments on a property aren’t discovered before its sale, the new owners can be on the hook for thousands of dollars or more
Why you shouldn’t attempt a title search on your own
Some people who have enough money to buy a home without a mortgage may be tempted to undertake a title search on their own. That’s a very risky move. Leave it to a title company that has the expertise and resources to do a title search and knows what kind of problems to look for.
If you’re still considering purchasing a property after a title search has come back with defects, or if you’re trying to sell a property with title issues, it’s wise to consult with a real estate attorney who can offer valuable guidance.