Before you purchase a new home, a title company will have to perform a title search. It will research the chain of title, or the record of ownership of the property. This is an essential step that can help you avoid a legal and financial nightmare.
What Is a Property’s Chain of Title?
A property’s title is not a single document. It’s a collection of rights that belong to the owner of the property. It covers what the owner may and may not do with the property.
The chain of title is the history of a property’s ownership. It should show that the property passed from one individual to another with no gaps or disputes related to ownership.
How Can a Title Company Help You?
A title company reviews public records related to a property, including documents that were filed each time it was sold. Documents related to a property’s chain of title should be carefully recorded to prevent any confusion or disputes about ownership.
Sometimes, a title search reveals that a document was not filled out or recorded correctly. Even a minor error can create a major problem when someone tries to sell the house. The seller might not legally own the property at all and therefore might not have the right to sell it. Someone else with a deed that was recorded correctly might be the house’s legal owner.
A title company also looks for any liens against a property, such as unpaid property taxes, debts owed to contractors, and homeowners association fees. A lien is associated with a property, not with a specific person. If there is a lien against a house that you want to buy, the deal won’t be able to move forward until someone (the current owner or you) pays off the lien.
In addition, a title search covers a property’s physical boundaries. This is often a point of confusion among homeowners. In many cases, neighbors reach informal agreements or people assume that they know where a property line is located when, in fact, official documents tell a different story. Before you buy a house, you will want to be sure that you know exactly what you’re buying.
Why Should You Purchase Title Insurance?
A problem related to a property’s title might stem from an issue that arose long before the current owner bought the house. The seller may be unaware that there is an issue unless a title company digs it up when researching the chain of title.
Even if a title company does its best to look for any issues clouding a property’s title, a problem might arise in the future. For instance, someone might come forward with a deed to the property, and it might turn out that that individual is the legal owner. Title insurance can protect you from legal fees and other financial losses in that sort of situation.
