A title search is something that you’ll likely need to do at some point in your real estate career. It sounds simple, but is it? Don’t worry, we’ll cover everything you need to know in this complete guide.
What Is a Title Search?
Real estate investors rely on property title searches to vet and confirm that the properties they’re interested in buying are suitable investments.
Video Source: Tax Sale Academy Youtube Channel
Without this essential research, you could find yourself:
- Buying property you won’t be able to own legally
- Responsible for thousands of dollars in mortgages or liens against the property
- Limited in what you can do with the property due to deed restrictions
Researching a property to find clear title and deed information is the only way to avoid problems like these. We’ll explore the title search process, a few ways it can be done, and what kind of information it will help you uncover.
What Is a Title?
For the sake of being thorough, we’ll start with the basics: What a title actually is. It sounds like an official document, but it’s not.
A title is a compilation of ownership documents and public records that show all past information about a property.
In a nutshell, the title includes:
- Who’s bought and sold this property over time
- Past and current deeds
- Any mortgages or liens against the property
- The actual owner(s) of the property
These documents may require intensive research. Sometimes, the documents won’t contain all the information you need to move forward with a purchase.
In any case, you have to start somewhere, and the best place to begin is your county’s Register of Deeds or County Recorder’s office.
Common Title Problems
The first step is locating the documents to confirm a clear chain of title. Still, in some cases, the documents won’t contain the information you need.
Sometimes, previous mistakes made by previous owners, government officials, or buyers can result in title problems that will become your problem if you aren’t careful. Here’s what to look out for.
Errors in documenting previous ownership can really throw a wrench into the process. A property can be sold without a proper transfer of title. The documentation would still show the previous owner before a sale as the current owner.
If this happens, it’s a headache, but not impossible, to have the proper corrections made so you can proceed with the sale. It’s also possible for a seller to genuinely believe they own a property but have no legal rights to it.
This usually happens in cases of inheritance, when the original owner did not correctly complete the paperwork to transfer the title to the heir. This will have to be corrected for the sale to move forward.
Outstanding Liens or Mortgages
Outstanding liens or mortgages – money the property owner owes, like in back taxes or contractor liens – against a property are probably one of the most frustrating title problems because they can’t simply be corrected.
That money is owed by the property’s owner, so if that becomes you, you may be investing a lot more than you planned for.
You can’t always trust that a seller will tell you about mortgages and property tax liens against the property, so sometimes, a title search is your only way to find out before it’s too late.
Deed Restrictions or Covenants
Deed restrictions are another title problem that could make a property potentially worthless as an investment. They may be written into a deed by a previous owner who sold the property with conditions, or by a Home Owners Association.
Either way, you need to know about this upfront. Restrictions can be written out in a previous deed or in their own separate document.
Property Boundary Issues
Perhaps the documentation shows a different property boundary than the seller indicated. It could be a neighboring property that bleeds over into the property line.
It could be an easement that allows a neighbor to have a driveway running directly through the property. Maybe the property line doesn’t extend all the way to the road.
These are all issues you need to know about upfront, and the title documentation is your best source of knowledge.
How to Check for Title Problems
With these potential issues in mind, you know it’s essential to do a property title search and confirm that the property you’re interested in doesn’t come with a mountain of issues.
This is when it’s time to start doing your research – whether you do it yourself or work with a title insurance company.
Do a DIY Title Search
You can visit your county’s Register of Deeds and begin hunting down this information yourself, but be aware: It’s a pretty risky move.
There are only a few cases where it’s a good idea to do your own title search:
- If you’re incredibly experienced and confident in your search abilities and knowledge.
- If the property is very inexpensive and title insurance would cost more than your investment.
Why shouldn’t you do your own title search if you’re inexperienced, or if the property is a significant investment for you? It’s just too big a risk.
Mistakes are easy to make, and the small, essential details that you might miss can magnify into problems that cost you thousands.
If you want to handle the title search yourself, start by going to your local Register of Deeds and ask for information on pulling up title documents. They’ll be able to point you in the right direction – sometimes at no cost.
Use a Title Abstractor
They may have a highly recommended local title abstractor to refer you to, which can help you reduce your risk and ensure you get accurate information without missing essential details.
A title abstractor gathers and guarantees documentation on the history of a property called the abstract of title. This includes ownership history, original grant, encumbrances, conveyances, and conditions on the property.
The abstract of title you receive will show you the history of the property’s ownership and conditions in order. You’ll be able to see each previous owner, who they sold it to, and when it was sold.
This will help you make sure there is a clear chain of title – that there are no missing links in the history. If you do find a missing link, you’ll know exactly where in the history the error was made or information was omitted.
This can help you make the necessary corrections. Sometimes, our own eagerness to get something done quickly and move forward with a sale can get in the way of doing a thorough, complete job.
Unless you really know what you’re doing or the property is incredibly inexpensive, it’s best to get title insurance.
Use a Title Insurance Company
It’s the more expensive option, but using a title insurance company to do your title search won’t eat up your time, and you’ll have peace of mind that the property in question is a good investment. That’s worth a lot in the long run.
Here’s what a title insurance company brings to the table:
- Provides years of experience and knowledge of title complexities and problems
- Completes a full property title search on your behalf
- Guarantees that the title in question is free and clear of issues after their review
- Reports any potential issue to you in detail
- Covers legal damages if a title problem does come up during a sale
This can help you feel much more secure about an investment than doing your own title search. The scenarios when you definitely need to get a title insurance policy include:
- If the property is a big investment — If it’s worth enough for you to invest big bucks, it’s worth getting a title insurance policy. It’s just another way to make sure your bases are covered. But if an issue does arise, you won’t be left footing the bill.
- If you’re new to title searches — You can spend a little extra time and do your own search to save money. But it comes down to the risk involved in doing a title search yourself. Unless you have experience, it’s better to have a title insurance company do this for you.
- If the seller indicates that there’s a problem —It’s rare for a seller to tell you upfront about a title issue because most don’t know about them until the buyer does the title search. If your seller tells you there might be a problem, listen – and have your title insurance take care of it.
So, Should You Do a Title Search?
Whether you rely on a title search or title insurance company or do a title search yourself, the information it provides will be invaluable to you.
As a real estate investor or professional, performing a title search is never too time-consuming or expensive. A thorough title search will ensure you’re investing wisely and not opening a can of worms you’re not ready to deal with.
Sometimes, your title searches will show no problems and enable you to move forward with a sale confidently. Sometimes, they will bring significant issues to your attention – some big enough to keep you from investing in a property.
Either way, these searches are a smart investor’s best tool for protecting themselves before a purchase and building a great investment portfolio.