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Buying a house is one of the biggest investments you will make in your life. Of course, you want to protect that investment. Your lender will probably require you to pay for a title search because it does not want to lend money on a property that might not show correct ownership, that might have taxes due, liens on it or that might have too many restrictions. Even if you pay cash for a property, you should have a reputable title company do a title search or you could end up being stuck with someone else’s financial problem.
A title search company or an attorney looks at the public records for the piece of property in question. The company examines the chain of title from the most current title to a title sometime in the past — often going back 60 to 100 years. If the title is not clean, the real estate transaction cannot continue. A title search tells you several things, including:
The vested owner of the property;
If the property has any outstanding tax obligations;
If anyone filed any liens on the property;
Easements on the property;
If the court filed any judgments against the property; and
If the property is collateral for any loans.
If the vested owner is not the same person selling you the property or someone authorized to sell the property, such as the executor of an estate, then the person selling you the property must fix the defect on the title. If the person cannot straighten out the issue, they might have to file a quiet title action in court. This could happen for several reasons, including errors on titles throughout the years.
If the property has any taxes due, liens, judgments against it or outstanding loans, those items are paid out of the profits of the sale. If the home does not have enough equity to pay all outstanding debts, then the owner of the house must either take the house of the market — you would lose that house — or bring the difference to closing.
In addition to the title search, a lender will almost always require you to pay for a title insurance policy. This policy protects only the lender. If you want to further protect your investment, you should purchase your own title insurance. The insurance policies protect the owner of the policy from any mistakes that the title searcher makes, such as an error in a deed or a missed lien on the property. While title insurance is not required, it is highly recommended to protect your investment.
