Title Search: What It Is, How It's Done, and Title Insurance

What Is a Title Search?

The term title search refers to the examination of public records to determine and confirm a property's legal ownership. Title searches are conducted through many sources, including deeds, tax liens, land records, court judgments, among others. Normally conducted by title companies, searches can be ordered by individuals and businesses at any time to find out what, if any, claims or liens are on the property in question. A clean title is required for any real estate transaction to be completed. Transactions cannot be completed if a title search determines there is a lien on the property.

How Title Searches Work

As noted above, a title search determines whether there is a clean title on a piece of property or whether there are liens or other defects, such as public record errors, which prevent it from being transferred between parties. The process normally takes place for real estate transactions, such as the buying and selling of homes, or for the purchase and sale of automobiles.

A title search is usually performed by a title company or an attorney on behalf of a prospective buyer who may want to make an offer on the property. The process may also be initiated by a lender or other entity to verify property ownership in order to determine whether there are claims or judgments against the property. This process is normally conducted before approving a loan or other credit that uses that property as collateral.

In order to perform the search, the requesting entity conducts research using public records and legal documents to identify the vested owner, the liens or other judgments on the property, the loans on the property, and the property taxes due.

While it is possible for a prospective buyer or another individual to conduct a title search on their own, it is not generally recommended. Legal documents can be confusing, and gaining access to courthouse records can be a difficult process.

Special Considerations

An attorney or a title company will search public records on a property's ownership before you close a deal on the purchase of a home as a prospective homebuyer. Once the search is finished, you will receive a preliminary title report.

If there are any issues or problems with the title, you can point them out to the seller. Depending on the exact nature of the issue, you can decide whether you want to go through with the purchase of the property.

You will likely want to include your attorney and real estate agent in these discussions. Some problems discovered via a title search are easily cleared up, while others may take so long that they jeopardize your loan commitment.

Dirty Title vs. Clean Title

A title search confirms a property's legal ownership and identifies whether there are any claims on the property. While a clean title proves sole ownership of a piece of property or land, a dirty title indicates that there is a cloud of uncertainty or discredit hanging over the property or land.

Erroneous surveys and unresolved building code violations are examples of title search findings that could result in a dirty or defective title designation. For instance, a dirty title may have unknown liens on it. Or a filing clerk at the county office could have misspelled or misapplied some information when it came time to register the title.

Title Insurance

Even a company or professional experienced in conducting title searches can occasionally miss something, or there can be a paperwork error that leads to a document being overlooked. Mistakes can happen, and these mistakes can be costly if you discover there’s an issue with the property after you complete the purchase. This is why buyers often purchase title insurance, which can protect you and your mortgage lender from financial loss if a title-related problem arises during or after the sale.

Title insurance protects against loss or damage occurring from liens, encumbrances, or defects in the title or actual ownership of a property. Unlike traditional insurance, which protects against future events, title insurance protects against claims for past occurrences.

A basic owner's title insurance policy typically covers the following hazards:

• Ownership by another party
• Incorrect signatures on documents, as well as forgery and fraud concerning title documents
• Defective recordation (flawed records or record-keeping)
• Restrictive covenants (terms that reduce value or enjoyment), such as unrecorded easements
• Encumbrances or judgments against property, such as outstanding lawsuits or liens

Example of a Title Search

Here's a hypothetical example to show how title searches work. Let's assume that you want to move to a bigger home. You've seen a few properties but there's one that piques your interest just a little more than the others. You decide to make an offer.

As the buyer, you want to ensure that the property is free and clear of any liens, encumbrances, and other defects that can prevent you from completing the purchase so you hire a title company to do the work for you.

The title company will take a few steps to determine if the title to your prospective home is clean or defective. This involves gathering legal documents relevant to the property by scouring through public records as well as going to courthouses and county offices. The company amasses all the information it finds to you.

You can go through with the transaction if the title is clear. But if there are any defects, the transaction cannot be completed. Some defects may be easier to clear up than others, such as clerical errors versus liens against the home.