Think of title searches on a house like an employer’s background check on a job applicant. A company can’t finalize a hire unless they’ve looked into the person’s references, credit history, education, driving record, and any prior run-ins with the law.
The same type of vetting process applies to the title of your home, which is a fancy name for your rights over a piece of real estate. Buyers need to know: Is your ownership legit, or do you have gambling IOUs from Vegas against the house that they’ll inherit as a “bonus” with their purchase?
Even if you believe your title to be free and clear of problems, you’ll need an official check to identify and clear up any issues, pronto. Any defect in the title, big or small, could hold up the sale. So we’ll help you get familiar with the routine title search process by covering all your bases, including:
- When title searches take place in a real estate transaction and who performs them
- The most common title problems that cause home sale delays
- How title insurance protects buyers from the unknown
- The process for resolving title issues that come to light
When does the title search happen in a real estate transaction?
Title searches typically begin after the seller accepts the buyer’s offer and before the deal closes. Some attorneys provide title search services, but most real estate agents work with title search companies, depending on the state.
In certain cases a buyer may request a title search prior to signing the purchase agreement, especially if there are any questions about the property’s ownership.
An estate, for example, may have multiple property owners, and the buyer may wish to find out if the person claiming to be the seller has the legal authority to proceed with the sale. An examination of the will and executor paperwork filed at the county courthouse confirms that the seller legally represents the estate.
Who performs the title search and how much does this service cost?
A title search costs between $75-$100 and is performed by a title company or real estate attorney depending on the state.
Misty Wood, a top-selling real estate agent in San Antonio with over 47 years experience, notes that most real estate agents build strong ties with title search companies the more they work together. As a result these companies with connections to the agent translate to better service—the title companies don’t want to lose business due to a bad reputation.
How much does a title search cost, and who pays for it?
Payment could go either way, as title search costs are just one of many points of negotiation between the buyer and seller in a home sale. Certain states and regions have customs about who pays for what, and your real estate agent will be familiar with what’s the norm in your neck of the woods.
If you’re making a lot of concessions in the sale, or feel like the buyer is getting a better deal, the title search is something you could request the buyer to pay. But with it being such a small cost in the grand scheme of things, talk with your real estate agent about whether this is a hill you want to die on.
“Find an experienced real estate agent to facilitate the transaction,” she said. “They build relationships with title insurance firms who conduct detailed searches and prevent title problems.”
Is there any way to prevent issues from coming up in the title search?
“Always be upfront with your real estate agent,” advises Wood.
“A good real estate agent asks sellers questions that will help clear any possible title problems before the property goes on the market.”
Misty continues: “For example, they will ask: Have you paid all your vendors? Do you know if anyone has put a lien on the property? Are you current with your HOA dues?”
By asking such questions during the initial meeting between seller and agent, the agent uncovers potential problems with the title that can be fixed early in the sales process.
Moreover, sellers may conduct an independent title search prior to listing with an agent to double check their home’s title. Of course, you probably know of any loans, liens, or claims on the title of your home, but you may not know that a deed was recorded improperly or that the neighbor’s new garage is too close to your house.
You can hire a title search firm to conduct a search for you or visit the local court house where deeds and permits are issued to trace the history of your home’s title and any building permits for your home or the neighbor’s home to check against your property.
How does a title search work?
Note that a title is not a physical piece of paper, but a bundle of rights that accompanies a piece of real estate. A title search, therefore, is not a hunt for a single document type. It involves rounding up a variety of documents that detail the history of a property’s ownership, including:
- Deeds that show property transfer
- Mortgages representing a bank’s collateral interest
- Liens against the property placed by creditors, vendors, or contractors
These records are located at a centralized government office such as the County Recorder or municipal offices.
According to Robert Berliner, an attorney with the Berliner Group LLC:
“The title search consists of a review of the public records to find out what matters have been recorded against the property—previous deeds, mortgages, easements, claims of liens by contractors, etc. Often there are matters, such as claims of a mechanics’ lien, that the seller should have been aware of but either wasn’t or was aware of but let it go.”
The title company will deliver a title report with information such as:
- The property details, including the home’s address and county location
- The legal description of the property on file
- Deed information, like who holds the current deed and the history of property transfer
- Mortgage liens
- Encumbrances and comments (this is where issues such as mechanics, HOA/Condo and utility liens will be listed)
- Property taxes—and whether they are current or delinquent
How far back do title searches go?
Title searches may examine records for a house for as long as the property has existed or for as long as records have been kept in the particular township or county. Allied Title and Escrow reports that in more than one-third of real estate deals, the title company involved has to undertake “extraordinary work” to address title issues that often go back 50 years or more.
But sometimes you can speed up the title search process by providing a copy of your title insurance policy from when you bought the house to the title company.
In some circumstances, if your policy was purchased within the past 15 years, the search can be limited to the duration during which you’ve owned the house instead of doing a full search on the title back to when the house was built.
Common issues that title searches dig up
Typical red flags that occur during title searches include:
Improper title transfers:
This happens when the property sells but the local government authority fails to complete the proper paperwork. Title records indicate a previous occupant as the owner. Often, records traced back reveal the point of error. Corrections made then clear the title and the property proceeds to sales.
Tax liens recorded against a title for back taxes owed must be paid before the sale proceeds. Unpaid property taxes, for example, may be listed against the home’s value. These taxes must be paid before the house sells or the tax amount may be deducted by the county from the home’s selling price.
Contractor and mechanic liens:
If a homeowner orders work completed on their property but fails to pay for it, the contractor may put a lien against the title to be compensated for his work. A mechanics lien follows the same concept but reflects a loan against the title to repay a mechanic such as an HVAC contractor who installed a new system.
Boundaries for land areas recorded with the title reflect the size of real estate sold. The size recorded with the title must equal the actual property size. Sometimes neighbors accidentally build over the property line or fences erected on boundary lines encroach on the area designated by the title. A survey may be ordered to confirm the actual boundary and the discrepancy between the recorded land deed and the current boundary.
“We once had a property whose boundary didn’t match up to the title,” says Ralph DiBugnara, Vice President of Retail Sales for RH Funding, a New York City-based mortgage lending firm. “Turns out the neighbor added an extension to his home without checking the property lines. The extension encroached on the seller’s property. Needless to say, the deal didn’t go through, which was a shame because the buyer really liked the house.”
Ralph did not know how the property owner handled the encroachment with the neighbor, but in other cases, homeowners face the unpleasant prospect of tearing down garages, extensions for fences built on neighbor’s properties.
Estates prove problematic when there are multiple heirs, uncertain heirs to the property, or liens from nursing homes, healthcare facilities and the like against the title. Multiple heirs or lack of wills make title ownership unclear until the courts determine who owns the property. Until then, the property cannot legally sell.
Forged titles can occur and disputes must be settled prior to the sale of any property.
Because titles provide legal proof of ownership, an unknown owner recorded on the title throws a challenge into the sale process. All owners must agree to sell before the title changes hands and closing proceeds.
What happens if there is a problem with the title?
In the event that a problem arises with the title of your house, you have to deal with it or the sale won’t move forward.
Problems that arise during title searches range from those that are easy to fix and those that are much more complicated. For example, Wood remembers a title search issue in which a previous seller’s title failed to transfer to the current owner. The paperwork snafu cleared quickly at the courthouse and the sale proceeded.
Liens or loans against the title clear after you pay them out. The exact timing depends on how swiftly local county courts move to process the paperwork and clear the lien. Wills and estates may take years to settle, thus stalling home sales. Sellers face few options except to negotiate privately with other stakeholders of the estate to obtain sole custody of the title in order to proceed with a sale.
However, most times clearing title is much simpler. Often, resolving such issues simply means verifying that a debt has been satisfied and then recorded properly, similar to when consumers clear up errors on a credit report.
Rarely does it take a lawyer to clear a title. Most of the time, the problems found during title search clear easily once you untangle the paperwork untangles, pay off bills and loans, and locate heirs.
In the unlikely event of a serious dispute, such as Ralph’s story of the neighbor who built across a neighbor’s property, sellers may wish to consult with a real estate attorney who can advise them on next steps.
What is title insurance?
After the official title search finishes, title insurance issued to the buyer protects their investment in the property in the event that an issue with the title occurs after closing.
“Even the most skilled title professionals may not find all problems associated with a property,” explains First American Financial Corporation. “ Some risks, such as title issues due to filing errors, forgeries, or undisclosed heirs, are difficult to identify.”
A title insurance policy does not negate the need for a title search, but is issued regardless of the title search outcome.
In a standard transaction, the seller will pay for the buyer’s title insurance policy, while the buyer pays for the lender’s title insurance.
An estimated 4- 5 % of title insured receive payment from their title insurance; these are policies on titles that appeared to be clear and proceeded to contract.
As you prepare to sell your home, ensuring that it lists with a clean, clear title paves the way for a smooth listing and sale. An experienced real estate agent offers the best guidance to help identify title problems.
Most title search problems resolve through simple solutions, corrected paperwork, and payment of outstanding bills, although complex issues may require professional assistance. The bottom line is: whichever route you take to address the problem, you have to clear title, or your home sale won’t close.