You've decided to purchase a home and hope
to take possession as soon as possible. The terms have been agreed upon
and all the financial arrangements have been made. But there's one
important detail remaining. Before the transaction can close, a title
search must be made.
The most accurate description of title is a
bundle of rights in real property. A title search is the process of
determining from the public record just what these rights are and who owns
them.
A title search is a means of determining
that the person who is selling the property really has the right to sell
it, and that the buyer is getting all the rights to the property (title)
that he or she is paying for.
The search process can be undertaken by the
title company in those jurisdictions where the company maintains offices.
In some areas, however, searches are made only by practicing attorneys.
However the search is performed, in most real estate transactions today a
title insurance policy is purchased to assure the buyer that he or she has
purchased a valid title.
In those transactions where title insurance
is involved, the title company must determine insurability of the title as
part of the search process. This leads to the issuance of a title policy,
which insures the existence or non-existence of rights to the property.
The title insurance company will, at its
own expense, defend the title and will pay losses within the coverage of
the policy if they occur.
But what exactly, is involved in a title
search?
Chain of Title
This is simply a history of the ownership
of a particular piece of property, telling who bought it and sold it, and
when. The information may be derived from public records — usually a
County Clerk's or Recorder's Office — or obtained from title plants
privately owned and maintained by title companies. There are great
varieties of such plants — index cards, punch cards, tract books, even
sophisticated computerized plants. However, they all contain essentially
the same information from which the history of the title may be secured.
Tax Search
This is a search to determine the present
status of general real estate taxes against the property. The tax search
will reveal if taxes are current or whether any taxes are past due and
unpaid from previous years. In addition, the tax search will indicate the
existence of any special assessments against the land and, if so, whether
or not these assessments are current or past due.
A due and unpaid tax or special assessment
is a prior lien or claim on the property above all others. If a buyer
purchases property with unpaid and past due taxes or assessments against
it, he or she is likely to find a government body — the village, county
or state — placing the property up for sale to pay those taxes or
assessments. A tax search reveals the status of the taxes. Title insurance
protects the buyer against loss from unpaid and past due taxes and
assessments.
Report on Possession
MCTA sends inspectors to look at the
property to verify the lot size, check the location of improvements, look
for evidence of easements that are not shown of record and check on who is
living there.
The purpose of this is to supplement the
information learned from the title search. In the eyes of the law, any
buyer of real estate is assumed to have notice of all matters properly
shown in the public records as to that real estate as well as any
information that an actual inspection may reveal.
If the inspector detects an unrecorded
easement or other evidence of outstanding rights that could affect the
owner's title and possibly the value and intended use, the company tells
the buyer of these things before he or she closes the purchase. Those
matters must then either be disposed of or shown as exceptions in the
title insurance policy. Sometimes when an acceptable survey and
appropriate affidavits are received, an inspection will not be made.
Judgment and Name Search
One of the most important parts of the
title search is to determine if there are any unsatisfied judgments
against the seller or previous owners which were in existence while they
owned the title. A judgment is a general lien against the debtor's real
estate and constitutes security for any money owed under the judgment. The
real estate can be sold to satisfy the judgment.
It is extremely important to be sure that a
title is not subject to judgments against the seller or previous owners.
Title insurance provides this protection. A judgment against a person
named Smith may affect the title of a seller named Smith, depending on
whether or not they are the same person. So all possible variations of the
name must be examined.
For example, the name Smith might be
spelled Schmidt, Schmid, Schmidtt, Schmidz, Schmied, Schmiedt, Smid,
Smythe, and so on. The name Nichols can be spelled 73 different ways, from
Nachols to Nychals. The task is to determine which of these applies to the
owner in question. First names have to be checked, too. There are 25
foreign forms of John, including Johann, Jehan, Hans, Shaun, Gudi, and
Efom.
Rights established by judgment decrees,
unpaid federal income taxes, and mechanic's liens all may be prior claims
on the property, ahead of the buyer's or lender's rights. If a judgment is
discovered that constitutes a defect in the title, it is pointed out, and
the seller must then eliminate it before the title of the new buyer can be
insured free and clear of that judgment.
Commitment
When these searches have been completed,
the title company issues a commitment to insure, stating the conditions
under which it will insure the title. The buyer and seller and the
mortgage lender can proceed with the closing of the transaction after
clearing up any defects in the title which may have been uncovered by the
search and examination.
The mortgage lender is as concerned as the
buyer about the quality of the title because the property is to be
security for the new mortgage loan. The mortgage lender requires assurance
that it has a valid first (or another acceptable priority) mortgage lien
on the property. This is not only common sense, but generally is a legal
requirement of regulated mortgage lenders.
The lender's title insurance, however,
doesn't protect the new buyer of the property. Although the land is the
same, the interest of the buyer and the interest of the lender are very
different. The provisions of a lender's title insurance policy are very
different from those of a buyer's policy, so the buyer should obtain his
own policy, often issued simultaneously with the lender's policy.
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