Title Search Basics

An important part of the mortgage approval process involves researching the history of the property’s title. Called a title search, it’s conducted by a company that specializes in this type of search. The process benefits the buyer by ensuring that the sales transaction is being carried out with the legal property owner.

Besides determining rightful ownership, a title search attempts to discover other problems that may be associated with the title; problems such as unpaid taxes that have resulted in a tax lien, a special assessment that’s overdue, an outstanding restrictive covenant, or other claim on file in the property record. The search can also uncover problems with the seller including but not limited to judgments and unsatisfied mortgages.

All of these are serious problems if not uncovered as any can have an adverse effect on the title’s value and/or marketability. The problem with a title search, however, is that it may not reveal every problem. In other words, a certificate of title does guarantee the absence of hidden problems.

For example, similar sounding or identical names can cause problems with a title as can forgery and fraud. The seller may be mentally incompetent or legally married, even though he or she claims otherwise, possibly resulting in an unexpected spousal claim. Clerical errors can cause hidden problems as can an otherwise defective deed. If any of these problems arise after you have purchased the property, your ownership rights may be jeopardized.

Some buyers mistakenly think the certificate of title from the title company protects them from issues not discovered during the title search. But such protection comes in the form of title insurance. If the title search misses a problem such as a tax lien, judgment, or an unpaid mortgage, title insurance provides legal defense and covers all or part of a buyer’s legal costs and other fees arising from a future claim made against the property. Should that claim be valid, a buyer’s actual loss up to the face value of his policy will be reimbursed.

Title insurance is available two ways: an owner’s policy or a lender’s policy. A buyer’s policy protects the buyer’s equity or investment whereas lender’s title insurance protects the lender’s interest in the property, which is the unpaid balance on the mortgage. Both the buyer and the lender are protected up to the insurance policy’s face value. Costs for these policies vary depending on the mortgage amount.

A buyer need only purchase a lender’s policy. However, for added protection, buyer’s title insurance can also be purchased. Buyers pay just once for this type of insurance and can likely obtain a favorable price from the company that performed the title search. Less costly policy reissue rates may also be available if the seller already has title insurance so be sure to check with the seller.