Title Search vs. Title Report vs. Title Insurance
During the home buying experience, it’s likely that you’ll dream up a few nightmare scenarios. One of those scenarios might be that — surprise! — the seller doesn’t have the right to sell you the house you’re about to buy. Don’t worry, though. The home buying process has a few fail-safes in place to make sure the property you’re about to buy is owned by the person who’s about to sell it to you. A title search, title report and title insurance are all components of the home buying and closing process. Although each one is different, they come together to form a larger whole. Here’s everything you need to know about a title search, title report and title insurance — including how they work together.
What is a Title Search?A title search is pretty much exactly what it sounds like. Someone, usually a title company, exhaustively searches through the public records to figure out who owns the property, if there are any judgments against the owner and if there are any liens or encumbrances against the property. More than that, the title search helps confirm if the seller or owner of the property legally has the right to sell it to you. The title search can also unveil any potential issues that would make buying and owning the property more expensive for you, or possibly even cause you to lose the home or have to legally defend your rights to the home.
How Is a Title Search Conducted?Usually, performing a title search involves examining public records and looking for information on the property itself, as well as information on the current owner. A few places where a title company might look when performing a title search can include:
- The county tax assessor’s office
- The county property appraiser’s office
- The county court records
- The county public records
- Surveyor’s records
What Is the Goal of a Title Search?One of the main goals of the search is to verify that the person who’s selling you the property owns it. But that’s just one component. The title search should also reveal if there are liens on the property that haven’t been discharged. A lien on a property means someone else or a company has a claim on it, either for the entire value of the property or just part of it. If the current or previous owner had some trouble with debt, the person or company they owed money to might have put a claim on their house. That can spell trouble for a buyer. If the ownership of the house transfers to them with the lien in place, they are likely to get stuck paying the original owner’s debts. A lien can also prevent the sale of the property from going through entirely. Another important fact a title search can uncover is whether or not the current owner of the property is up-to-date on their property taxes. Just as you don’t want to inherit a random lien from a previous owner, you also don’t want to inherit their back taxes.
Can You Do a Title Search Yourself?Since performing a title search involves searching through public records that are accessible by anyone, you might wonder why you’d even need to hire someone to perform the search in the first place. Technically, you can perform the search on your own. However, title companies pay to access to a title plant, which is a certified database of records showing all information about a property for the past 30 years or more. This gives them access to higher level data than the public and that data is certified and backed by the title plant. If a person searches online and a lien or encumbrance is missed, they’re on their own as far as liability and legally defending their position. It’s in your best interests to hire a professional title company to handle the title search and everything else related to the title of the property you’re looking to buy. For one thing, if you perform the search — and you’re not 100 percent sure what you’re looking for — is going to be a significant challenge and investment of your time to learn how to properly examine the title and identify potential issues. In addition, the time it takes you to examine all the records and documents will most likely be much more than you’d expected – and the bottom line, a title company will not insure the title based on a search and examination performed by a buyer. Remember: just because you can “DIY” something doesn’t mean that’s the best or even a viable option. For peace of mind and verification that you won’t have any issues after closing, you’re better off hiring a title company to handle the title search as well as all other aspects of the closing process.
What Is a Title Report?The title report is the magnum opus that comes out of the title search and examination process. All the information your title company uncovers during the search and examination gets printed out in the title report. The title report isn’t going to be the most engaging thing you’ve ever read. But, while it’s not the next New York Times Bestseller, it’s going to contain incredibly valuable information to determine what’s needed to clear the title. Reading and understanding its contents is a must if you want the 411 on the property you’re thinking about buying. Generally speaking, the title report includes several different sections, each of which shines a different light on the health and status of the property. The sections often include:
- Property and Owner Information. This section includes the current owner’s name, the property address and the property folio number – the tax number issued by the county.
- Legal Description. The legal description is the address the county uses to locate the property. This section is going to be a bit more in-depth than an address and often a bit trickier to wrap your head around. You’re going to find some legalese in it, so it’s a good idea to have a professional around to help you decipher it. The legal description is what all liens and/or encumbrances are recorded against, not the property address. The property address is what the USPS uses to deliver your mail.
- Liens and Encumbrances. In a perfect world, this section of the report would be short or non-existent, but if the previous or current owner of the house has any outstanding debts that have been recorded against the property, they will appear here. The liens (if there’s more than one) will usually be listed with the largest one appearing at the top. When the sale of the property goes through, the proceeds from the sale get distributed to the lien holders. That might not be a big deal if there’s just one lien listed, but if there are a lot of claims or the house is being sold for less than the total value of the liens, you’re likely to run into problems.
- Tax information. If the current owner of the property owes any back taxes, the transfer of the title can’t go through. If there are taxes owed, they are the first thing that gets paid, before any other lien holders.
- Easements. In some circumstances, other property owners can get access to specific areas of your property. That access is known as an easement. It can include giving utility companies access to your property for power lines and the like.
- Restrictions, historical rules, oversights. If you’re buying a house in a historic district, your title report might include a section outlining the rules and restrictions placed on you as a homeowner. For example, you might be limited in the types of changes you can make to the facade or exterior of the building.
- Covenants, Conditions and Restrictions. The covenants, conditions and restrictions (CC&R) section of the title report is usually reserved for condos and other types of planned developments. The CC&R outlines the rules and regulations of the condo or homeowner’s community on the owner of the property, such as whether you have access to certain common areas or whether you’re expected to contribute to the maintenance and upkeep of certain public areas.