What is the Title Process?

Lyons Title & Trust

Searching Title

Searching title is a vital component of the transfer of any real property from buyer to seller. The lending institution usually requires proof of ownership and assurance that the owner has the legal right to transfer their interest before the lender will invest. A lender will also need to know that there are no encumbrances or liens on the property—usually using the information discovered in a title search to add a level of security to their investment.

Title search reports are also used by experienced investors, who require a “Certified Title Report” prior to a sale or auction. Any litigation, particularly about property rights, requires that a title report be obtained. Audits by the IRS are another reason a title search would be conducted.

So if you are buying, selling, financing, investing or litigating a property, due diligence requires that you obtain a title report and that requires a title search.

The title search explained

The title search, done by an experienced agent of a title company, determines, from a thorough search of public records, who has the legal right of ownership of a piece of property.

A “current owner search” establishes the legal owner and a “chain of title search” establishes the history of the property for a given period of time to the present day. A chain of title is often used for mineral rights, litigation, title insurance and even historical research. These searches create a snapshot of the legal and financial standing of the property. The chain of title search makes use of public records from the County Clerk or Recorder’s Office and/or from “title plants”, data information storehouses maintained by the title companies.

The title search also looks for “defects” in the title that could pose problems for a buyer trying to obtain a clear title to the property. These defects can be second mortgages, unpaid tax bills, boundary disputes, unsatisfied liens, the simple absence of a required signature or many more “clouds” affecting a title. These defects must be addressed before clear title can be obtained.

The title search also shows municipal charges that may be due from previous years and the present status of real estate taxes on the property.

Types of documents searched

A well-conducted search will also include a “judgment search’ that will show any bankruptcy or other judgment against the seller or prior owners that is attached to the property. If any unsatisfied judgment against the seller or previous owners were in existence when they owned the title, a judgment or general lien is placed against the debtor’s real estate and acts as security for any money owed under the judgment. A property can be sold to satisfy that judgment. Title insurance can protect the buyer from any legality in this instance, but the search (including all variations of a person’s name) must be exhaustively conducted.

A “tax search” will determine if any general real estate taxes have been levied against the property, determining if the taxes are current or past due. The tax search will also reveal any special assessments against the property and indicate if these are current or past due. An unpaid tax lien or special assessment takes precedent before any other claims on a property.

A “report on possession” may also be compiled, supplementing the information gleaned from a title search to satisfy the law that says any real estate buyer is assumed to have notice of all the matters shown in the pubic records about the property, augmented by any information an actual inspection may reveal.

The buying and selling history of similar local properties (“comps”) may also be part of title company’s search services to aid buyers, developers and investors.

Once all searches have been completed, the title company will state the conditions under which it will insure the title and issue a “Commitment to Insure.” After clearing up any title defect uncovered in the title search, the buyer, seller and mortgage lender may proceed with the sale confidently.

More information about title searches may be found at www.alta.org

Examining Title

Risk elimination, the true function of title insurance, begins with examining the title of the property to be sold. Examining title relies heavily on the title search performed before any title insurance is issued.

The search, conducted by an experienced title agent is in general, a search of public records to see if any defects are found that will affect the title to the real estate property in question.

Types of records and defects

Through careful examination of all records from county, municipal and data storehouses maintained by the title industry, the chain of history of the property is established. Deeds, trusts and wills are examined in a search for incorrect names (or improper vestings). Outstanding tax bills, mortgages and judgments are searched, as are property boundaries and easements. Incomplete or incorrect notary acknowledgments are noted during the title examination as well. Such a title examination of evidence is conducted to be as sure as possible that all material objections to a title have been reported.

When all information available has been gathered, the title company will declare the title “Marketable” (clear of all encumbrances and ready to proceed to closing) or “Insurable”, once the listed defects or hazards have been either been cleared or deemed be harmless to the future validity of the title.

Title Insurance Policies

Title insurance is issued to the buyer as an Owner Title Insurance Policy, protecting the buyer from any defects that may rise from the property’s chain of history that don’t surface until after the sale has gone through. Such a policy not only protects the buyer from financial loss, but the title company will accompany the buyer into court to defend any claim against the title.

Also the mortgage lender may insist on a Lender (or Loan) Title Insurance Policy. In this policy, the institution’s financial investment is covered in much the same way as in the Owner Title Policy, against disclosure of any defect from the property’s history being found in the future and causing problems for the title.

A thorough and extensive procedure of examining the title, through a comprehensive title search, is the best defense for all parties concerned with having a smooth sales transaction at present and avoiding title difficulties in the future.

Visit www.alta.org to learn more about examining title.

Recording Title

What is involved in the process known as “recording title”?

Recording title is the entering into the official records of the Recorder of Deeds Office or the County Recorders Office any real estate document. These documents may be mortgages, titles, deeds, easements, foreclosure, or requests for notice of defaults or liens, and are entered in the county where the property is located.

Recording a title entails going to the Recorders Office and paying a fee (this may also be done by mail). The date and time of the recording will be entered and a number stamped on the document and usually a copy is made on microfilm before the document original is returned to you.

Avoiding disputes

This recording of the title is to add to that chain of history of the property that may be traced during future title searches. By recording the title, notice of ownership is put into public record and thereby given to the general public. Such recording of title also helps resolve any future disputes about the title.

In the event of future liens, for example, the date and time stamp on the recorded title would show which party has precedence for payment. Or, in the case of competing deeds, the stamp would show who gets priority of title.

Recording Acts (state statutes which establish how County Recorders and Recorders of Deeds keep their official records) prioritize official records so the order of priority of documents can be easily seen when conflicting claims arise.

Laws and statutes regarding recording of titles differs from state to state, so it is best to consult with your title company agent or real estate lawyer about how best to record your title.

Your local title company or American Land Title Association can give you more information about recording your title.

Closing Title

It has finally arrived: Closing Day. All the principals involved in the sale of your new property have been called together and you are finally going to receive the title of your new property at closing

Your real estate agent had placed an order with the closing agent as soon as your sales contract was accepted. (This closing agent can be your title company, an attorney or an escrow company, and you may choose your own agent if you’d like.) This agent will oversee all the details of completing the transaction, arranging the closing and presenting you with the title to your new property without delay.

Closing documents

The closing agent will check that the contract or escrow agreement that has been drawn up is accurate and will put your deposit into an escrow to be used at closing. Then the title search begins where the title company searches public records looking for defects in the title (unpaid taxes, contractor’s liens, boundary disputes or a myriad of other glitches).When any problems from the property’s history are discovered, your title agent will do whatever possible to correct them. After the title is cleared, the agent will then issue a Title Commitment, a document detailing what the title insurance company will and will not cover.

If the contract calls for a mortgage to be paid off, the closing agent will order payoff figures from the mortgage lender. If the buyer is assuming the loan, the agent will order an Assumption Package (which shows the current loan status.) Other details will be seen to, like surveys and property inspections, with any problems reported to the appropriate parties for correction–all of these things are handled by the closing agent.

Then the time, date and place of the closing are set, all parties are informed, and everyone meets for the signatures and checks to be disbursed. Finally, at the long-awaited closing, you are given the title to your new property and perhaps even the keys to your new home.

www.homeclosing101.org has lots of information about property closing and conveying title.

Title Insurance Policy

The title company, to protect the rights of the buyer or the lender of residential or commercial property, provides a Title Insurance Policy, protecting them from any problems arising from the past history of the property that is not disclosed in the title search.

Two kinds of Title Insurance Policies may be issued but only after that thorough title search of all public records relating to the property, has been conducted by a title professional. The title search looks for any possible flaws to a clear title (such as unpaid taxes, unsatisfied liens, undeclared heirs or any other undisclosed problem) and must be completed before either of the types of policy may be written:

The Lender’s (or Loan) Policy assures the mortgage lender that their institution will not be impacted by undisclosed title problems discovered after the title search has been completed. This policy covers the lender for the amount of the loan and declines accordingly as the loan is paid off. Most lenders require a Loan Policy as security for their investment in real estate.

The Owner’s Policy> covers the buyer and insures that the title company will stand with them to resolve any problems found after the purchase has been completed. The buyer will not be liable for any title flaw that has arisen from the property’s history before they purchased it. The Owner’s Policy will stay in effect for as long the buyer owns the property. The title company will help pay valid claims and cover the costs of defending any attack on the title.

A Title Insurance Policy eliminates much of the risk for both buyer and lender and allows those purchasing property to know they are protected again claim and loss. For mortgage lenders, a Title Insurance Policy insures their investment is safe.

For more information on finding a Title Insurance Policy, visit the website of the American Land Title Association (ALTA) by clicking here.