A title is what grants the buyer ownership of a property. Obtaining a clear title is important for ensuring that both the buyer is purchasing a property without liens against it or claims of ownership from the relatives of former owners and that the lender is supplying funds for a legitimate sale. Key items in the title process include:
Title insurance is another form of protection for a buyer in a residential real estate transaction. It insures the buyer is fully disclosed of all liens against the former owners of the property and of any documents that may restrict the buyer’s use of the property such as easements granted by prior owners. Title insurance insures that the buyer will receive a marketable title to a property and protects against title defects from past events.
Title companies will perform a thorough search of all public records associated with a property including deeds, wills, and trusts to determine current recorded ownership, recorded liens or other matters of record that could affect clear title to a property. Following the title search, the title company will prepare a Preliminary Title Report.
Preliminary Title Report
A Preliminary Title Report provides all pertinent information for the property to successfully be brought to escrow. It includes a legal description of the property, a plat map and information regarding the ownership of the property such as the manner in which the owners currently hold title and matters of record that would prevent the granting of clear title to the buyer including liens, restrictions or interests of others. It is important to note the type of ownership rights that will be transferred. The most common is “fee” or “fee simple”, a freehold ownership where owners possess complete ownership of the home and land, but are still subject to taxation and debt obligations on their mortgage.
Title Insurance Coverage
A Preliminary Title Report will also detail the coverage offered by the title insurance policy. Not all risks can be eliminated by a title search of public records including hidden defects such as forgeries, identity of persons, incapacity and failure to comply with the law. A title insurance policy provides coverage against hidden defects making the insurance company liable for most claims that could be made against ownership. Title insurance is a one-time, up-front investment with rates based on the purchase price of a property and the type of insurance purchased.
Extended Coverage Options
The American Land Title Association (ALTA) offers extended owners’ and lenders’ policies that cover matters that are “off record” but generally discoverable including unrecorded liens and encumbrances, unrecorded easements, unrecorded rights of parties in possession and encroachments or discrepancies in boundary lines. To determine whether this type of additional coverage may be needed, it is important to review the policy being offered by the title company and determine any limitations.