You’ll notice a lot of title fees when you close on a home. Learn why a property title review is so critical, what it entails, and why it’s worth every penny.
Once the seller accepts your offer, things are going to move really fast. Home inspections, title searches, appraisals, and financing will typically happen within 15 days of the contract signing. One of the most important pieces on this to-do list of important items is the title review, which is the examination of the ownership of the land.
A real estate attorney or title company can do a title review. They will look at the property’s chain of title (i.e. all the title transfers in that property’s history) and whether the property is encumbered by any judgments, liens, or lawsuits. They also will look for recorded easements and other variances that could affect ownership of the property.
What is the purpose of a title review?
Also called a title examination, a title review identifies possible issues with the property’s land. A title review has nothing to do with the actual dwelling or any buildings on the property. The title deals with the physical location of the property as it sits geographically in the neighborhood.
A title review makes sure that the chain of ownership is correct, complete, and that it has no encumbrances that could delay its sale such as liens, judgments, or lawsuits. Attorneys call these “title clouds.” Sometimes an issue is easy to clear up, but a buyer can decide to cancel the deal if it’ll take too long to resolve the title cloud.
What is a title abstract?
The title abstract is a historical report that lists all legal documentation related to the title, including every time the property changed ownership and any claims against it. They are critical to ensuring the state of ownership of the property you are purchasing. The title abstract will usually list this history for the entire life of the title, and they’re usually prepared by a real estate attorney, title company, or abstractor in some states.
What are the most important parts of a title review?
Once you receive your title review, read it carefully. The information can save you a lot of headaches. This is what’s included:
- Title abstract – This document shows the chain of ownership of the property as well as any details, vesting, or anything recorded against the property, such as liens, judgments or lawsuits.
- Title insurance policy – This document insures your title in case any defects against it come up after you buy. The insurance policy will also list any exclusions. Be sure you’re aware of the exclusions so you can make an informed decision before you buy.
- Property plat – This document shows the legal property boundaries and any recorded easements or encroachments.
- HOA or condo association documents – If the property has a homeowners or condo association, these documents outline the association’s bylaws, the board of directors’ minutes, and the names and contact information for board members.
A title review will find any unpaid property taxes, which will show up as a primary lien against the property. If there are, they’ll need to be paid before any other debt holder (usually the bank that issued the current mortgage) is paid and the title is clear for the new buyer. If a title review finds any defects that can be corrected, you can still get title insurance, but it will have exclusions based on the title search and its findings.
Will you need to purchase title insurance?
Yes. If you’re getting a mortgage, your lender will require it. Title insurance protects the lender in the event of a defect in the title. It protects against any title problems unless they are listed as an exception to the policy. Title problems can arise after you close from information not found in a public records search, missed information on the initial search, or any forgery and fraud, so it’s a good idea to get coverage.
What if you’re purchasing the property with cash?
If you’re purchasing a piece of property with cash, title insurance isn’t required but it’s still highly recommended. There are tons of horror stories about new owners discovering unpaid property taxes, questionable encroachments, no easements to access the property, and other clouds on the title that can cause you numerous headaches after you close.
Buying a new home comes with stress, but it’s also a huge milestone in life. Educating yourself about the process and working with a knowledgeable real estate agent can make your journey smoother. The title review is a critical piece of this process. Knowing the property’s history and whether there will be future issues can help you make an informed decision about your purchase.