Buying a home comes with a lot of questions – especially if you are a first-time homebuyer. From inspections and mortgages to title insurance and everything in between, there’s a lot to think about. Many buyers can feel overwhelmed at some point in the process. That’s why working with a trusted, knowledgeable realtor is so valuable, as they can help guide you every step of the way. Still, having a general understanding before you dive in can boost your confidence and help you make smarter, more informed decisions.
As a part of our Common Questions When Buying a Home series, we’ve put together some of the most asked questions about title – including what the most common title problems are, what title insurance covers, what it doesn’t, and more.
What is a title?
A title is a legal right to ownership of specific real estate property that includes the right of possession, right of exclusion, right of control, right of enjoyment, and right of disposition. Titles can change hands through a will, court decree, law, or by selling the property. Any time a title is transferred, it is recorded in a deed and filed with county clerks.
What is the difference between a title and a deed?
It can be easy to confuse these two terms. A “title” is the legal ownership rights to a property, while a “deed” is the document that officially transfers those rights.
What does title insurance cover?
Title insurance protects real estate owners and lenders against any property loss or damage they might experience because of defects in the title to the property. It is unusual from other types of insurance in that it protects you from losses caused by errors that may have occurred in the past, rather than what might happen in the future.
Oftentimes, a home or piece of land has been owned by numerous people, stretching back a century or more. With title insurance, the owner is protected from possible errors, future claims, or undiscovered interests, such as forgery of deed documents, fraud, and mistakes in public records.
In addition to these unforeseen legal and financial title discrepancies, title insurance also protects you from the costs, attorney’s fees, and expenses of defending against those defects insured by the policy. It also insures a homeowner from financial loss if the sale of the home falls through due to a covered defect in the property’s title.
What is not covered under title insurance?
Like other types of insurance, title insurance has its limits. For example, it does not cover issues related to the condition of the property – think termites, radon, mold, or anything uncovered during the home inspection. It also won’t protect you from title issues that you knew about prior to closing, or from anything that happens to the title to the home after the closing date.
Title insurance is specifically designed to protect you from unknown title defects that existed before you became the property owner.
What are some common title issues?
Title problems arise when disputes or issues regarding this ownership record emerge. Common title problems include:
- Encumbrances: Any claim, restriction or legal right that someone else has on a property, even though they do not own it. These can limit property ownership rights in some form, whether it has to do with how you use the property or your financial interest in it.
- Liens: A type of encumbrance placed on a property to secure the repayment of debts, such as mortgages, unpaid property taxes, or contractor liens.
- Easements: A type of encumbrance that grants a third party, like governmental entities or utility companies, legal rights to use a portion of your property for a specific purpose. These can impact your property’s utility and development potential.
- Boundary Disputes: Disagreements over property boundaries when neighboring property owners have differing interpretations of their respective property lines.
- Errors or Omissions: Clerical errors or omissions in public records or the property’s chain of title, which can cast doubt on the property’s ownership history.
Other title issues that can crop up include forgery, an undiscovered will, illegal deeds, or mystery heirs.
How are title issues discovered?
A title company will thoroughly search public records to determine the property’s ownership status and to find and remedy, if possible and necessary, several types of ownership issues.
A title search looks at a variety of records to find information about a specific property involved in a real estate transaction, including:
- Deeds
- County land records
- Tax liens on the federal or state level
- Divorce cases
- Bankruptcy court records
- Other financial judgments against an owner that could potentially attach to a property
The property title search ultimately determines whether or not the property is free of liens and pending lawsuits, and if title ownership is accurately represented by the seller. A clean property title search means the buyer and lender agree there are no claims on the property that could become an issue after ownership is transferred.
What happens if a title issue is found during the title search?
Title problems can have significant repercussions for homeowners. They can make it challenging to sell your home or refinance your mortgage. Typically, buyers and lenders require a clear title as a prerequisite for any real estate transaction. Sometimes, a title issue can escalate into protracted and costly legal disputes, particularly in boundary disputes or conflicting claims of ownership. In certain circumstances, a title problem could jeopardize your ownership of the property if someone else can substantiate a valid claim to it.
For more answers in our Common Questions When Buying a Home series, check out: