Buying a home is a lot different than your typical, everyday purchase. Not only is a home a more expensive purchase but the way in which you convey ownership of a home purchase differs as well. This is where a title company’s role comes into play.
Purchases such as homes or automobiles are referred to as “real property”. In order for someone to sell their home or their car, a title must be present in order for a transfer of property to take place. Title companies help sellers transfer their title and help buyers take possession of that title by performing a title search.
After terms of the home sale have been agreed upon and financial arrangements have been made, a title company will perform a title search. This means they will be searching the property’s title history to make sure it’s clear of any defects, such as other claims or liens on the property. The title search ensures that the seller has the right to be selling the property and a clean title. Title companies determine this through:
- Chain of title - a history of the ownership of a piece of property, detailing who bought it and sold it and when. This information can be found in public records at a County Clerk or Recorder’s Office.
- Tax search – a search to determine the status of the property’s real estate taxes. This search shows if taxes are current, past due, or unpaid from previous years. Unpaid taxes are a lien or claim to the property.
- Judgment and name search – one of the most important parts of the title search, the judgment and name search determines if there are any unsatisfied judgments against the seller or previous owner which existed while they owned the title. For example, the previous owner had construction done on the property but never paid the contractor. If a judgment exists, the property can be sold, but the judgment will need to be satisfied at close.
When all of these searches have been completed, a title company can issue a commitment to insure that title, pending certain conditions if any arose during the title search. If any title defects were found during the search, the buyer, seller and lender can choose to proceed with the transaction after resolving those defects.
Another role of a title company is to issue title insurance to a property buyer to guarantee against fraudulent ownership claims. Title problems can occur even after a title search, but title insurance is assurance that your title company will stand behind you, monetarily and legally, if a covered title problem arises.
Title insurance is typically paid for in a one-time payment at closing, and the policy protects the buyers as long as they have an interest in the property.
Interested in learning more about the homebuying process? Our Mortgage 101 Handbook is a great guide for first-time buyers looking for more information regarding the home buying and financing process.