Why Getting A Title Search Is Essential If You Want to Protect Your Property Rights
A title search is the process of examining documents and records in order to determine the legal history and rightful ownership of a property. A title search is always required before a title company issues a policy, since otherwise, the title company could be agreeing to protect a property with serious title issues.
What Does a Title Search Look For?
If you’re a lender, the last thing you want is a title issue preventing one of your borrowers from making their monthly payments. That’s why most lenders require that property buyers purchase a lender’s title insurance policy from a title agency before they’ll agree to close any major property transaction. However, in some areas, it’s actually the custom for the seller to pay for lender’s title insurance (though this is somewhat rare.)
In most cases, a title search is looking for title issues, errors, and situations that could impede a new owner’s ability to actually “own” the property without any problems. To do this, a title search asks questions including:
- Does the seller have a marketable interest in the property?
- Are there any liens on the property? (i.e. past mortgages, taxes, UCC liens, mechanic’s liens)
- Are there any restrictions on the land use? (i.e. real covenants, easements, equitable servitudes)
Now that we’ve covered the major things that a title search looks for, let’s get a little bit more into the specifics.
SELLER TITLE MARKETABILITY
The first thing a title search will usually look to confirm is whether the seller actually has a marketable title to their property. This starts with confirming that a seller is really who they say they are since there are many cases of fraudulent individuals impersonating property owners, especially in the case of people with similar names. Then, the title search will attempt to look for any competing claims to the property by others; for example, an heir to a previous owner or a previous owner’s ex-spouse or business partner.
FINANCIAL LIENS ON PROPERTY
Financial liens on a property occur as a result of unpaid debts, such as loans, taxes, or contractor’s fees. A bank lien on a property is typically the result of an unpaid mortgage, equity loan, HELOC, or commercial equity line of credit. Tax liens are the result of unpaid taxes, which can occur on the local, state, or federal level. In comparison, mechanic’s liens occur as the result of an unpaid contractor who has done work on a property. For residential properties, a homeowner’s association (HOA) may also have property liens, which they can use in an attempt to collect unpaid dues.
RESTRICTIONS ON LAND USE
There are several restrictions on land use that could negatively affect your ability to use your property in the way you want to which is why a title search takes care to look for all of them. These restrictions include:
- Real Covenants: A real covenant is a written restriction (often put in place by the original developer or grantor of the land) that can restrict how land is used. For example, perhaps a covenant mandates that homes in a certain neighborhood cannot be built past 2 stories. Covenants can also control property setbacks, and, in the case of commercial property, can limit its use to certain kinds of businesses.
- Easements: An easement is a right for someone other than the owner to use a piece of property in a specific way. For example, almost every home has an easement for utility companies to access the land, in order to conduct repairs or lay power lines. Other kinds of easements, such as a prescriptive easement, can occur if an individual “openly, hostilely, and notoriously” uses another person’s land in a specific way for 5 years– i.e. if a local man walks across a neighbor’s yard for 5 years, he now may legally have the right to continue doing so.
- Equitable Servitudes: An equitable servitude is another type of right that allows someone who does not own land to use it in a specific way. Like a covenant, the equitable servitude may be written and “run with the land”, while in other cases, it may simply be implied, though implied equitable servitudes are not allowed in some states.
What Does a Title Search Look For?
There are two major types of title searches, full title searches and limited title searches. For the purposes of achieving an initial mortgage on a property or a construction loan, a full title search is nearly always required, which will take an in-depth look into the history of the property. For some property refinances and equity loans (like a home equity loan), a limited title search may only be needed, which mainly looks at liens and other financial obligations that may get in the way of the loan’s repayment.
To learn more about how to make sure your property is safe from title issues and to learn how to save on title insurance, escrow, and closing services, simply contact the experts at Sterling Title Partner to learn more.