Why is a Title Search Necessary?
When buying a home, one of the steps that lenders take during the closing process is to conduct a title search. The reason they do this is to ensure that there are no reasons why the title can’t be transferred from the current owner to the buyer with a lien attached. There are a number of things that go into conducting a title search and assigning title insurance prior to the close of a real estate transaction.
Conducting Title Searches
There are several players involved in transferring a real property from one person to another. The lender will engage a title company in order to conduct a title search and ensure that the title doesn’t have any encumbrances that would prevent it from being transferred free and clear to the buyer.
When conducting a title search, the title company starts with the current owner and then traces ownership transfers backwards. This will ensure that there are no unsatisfied liens or other claims on the property when the property is transferred. When the title search is complete, the title company will prepare a report that describes the property being transferred including the current owner’s name and contact information, the address, and then any and all liens, judgments, and other documents that have been associated with the property.
In the event that the title search does uncover a problem, the title company will help the seller find out what needs to happen in order to rectify the issues so that there are no problems transferring the deed to the property. If the seller refuses or cannot satisfy these obligations, the property cannot be sold and the transaction will not close.
Benefits of Title Insurance
After a title search has been conducted, many title companies will offer title insurance to the buyer of the property that protects them in the event that something comes up after the property has been transferred. Title insurance is represented as a one time charge and is generally part of the closing costs that are associated with the closing of a real estate transaction.
This means that the lender will front the cost of the title insurance and will be reimbursed when the transaction closes and the closing costs are paid. It is customary for the seller to pay the buyer’s premium and the buyer to pay the lender’s premium. No matter what lender you are using, you will be required to pay for title insurance as part of the home buying process.
When buying title insurance, there are three different policies that are purchased:
Lender’s Policy: The lender’s title insurance policy is designed to protect the lender from financial loss resulting in a defect in the title and will exist as long as there is money owed to the lender on the home.
Owner’s Policy: The owner’s title insurance policy is designed to protect the buyer against problems arising with the title such as incorrect signatures, forgeries, judgments and more.
Extended Owner’s Policy: While this coverage is optional, it does protect buyers from issues arising from building permit violations, issues arising from previous owners, encroachments and other issues.
Different Title Searches
Some title companies offer a couple of different options when it comes to conducting title searches. For example, a current owner title search is often used when purchasing a foreclosure or when buying a home through a tax sale or as a for sale by owner transaction. It doesn’t go into the same level of detail as a fill title search does.
A full title search will divulge any and all outstanding liens, mortgages, judgments and other records that have ever been filed against the property, whether they are satisfied or not. Full title searches are beneficial when purchasing bank owned properties and foreclosures as well. When a full title search is conducted, the buyer will be presented with all of the documentation discovered during the search process. InfoTrack.com.au and other title search companies can provide both types of title searches based on your needs.
Regardless of what type of property you are purchasing or whether or not a mortgage is being taken out on a property, conducting a title search and securing title insurance is the only way to ensure a smooth real estate transaction and protect yourself against loss in the event a problem is discovered with the title to the property.