How To Do A Title Search: A Beginner's Guide
What Is A Property Title?
A property title is a document that names the rightful owner of a property. Only the person on the title has the right to sell the property. As an investor, you need this information to ensure that the person selling you a property is, in fact, within their rights to do so. This can get a little complicated if there are any liens on the property. The property owner has to settle any liens or claims before they can rightfully make a sale.
What Is A Title Search?
A title search is simply the process of examining public records to determine a property’s ownership. The search can uncover whether or not there are any liens on the property. Other unexpected legal issues can also come up, which we’ll go over next.
Conducting a title search requires sifting through a lot of legal documents and public records. The purpose is to uncover as much available information as possible so that the buyer can make an educated purchase decision. Other than real estate investors, mortgage lenders and other creditors also initiate title searches.
What Can A Title Search Uncover?
As mentioned before, a title search can uncover some unexpected legal issues. As an investor, you want to know of these right away. Ideally, these issues are addressed and resolved before the transaction goes through. In some cases, the legal issue can be enough reason to walk away. Your lawyer or title search company can help assess the gravity of the following common legal issues:
Easements: An easement is when an individual other than the owner was given the right to use the property. You’ll want to find out who this individual or entity is, why they have the right to use the property, and in what capacity before you make any decisions.
Covenants: Covenants are legal restrictions that put a limit on what you can build on the land upon which the property sits. As an investor, this might kill your deal if you were planning on making expansions or are building an additional unit on the property.
Caveats: You might be most familiar with this term, which means that another party has shown interest in the property. Find out what kind of offer your competitors have made, and see if you can better their offer or make a stronger case for why you are the ideal buyer.
Title search companies and attorneys rely on the following sources to conduct a title search:
County administration land records
Federal and state tax liens
Custody and child support documents
Estate planning documents
Why Do You Need A Title Search?
Conducting a title search is a measure of minding due diligence and protecting yourself. Finding out the owner of your target property is just the first step, and you should be careful to investigate further. This is because you want to make sure they own the title free and clear. If not, you could find yourself with a property that is riddled with claims and liens.
For instance, you might be unpleasantly surprised when finding out that the current owner has an old claim against their title. They might not even be aware! In another example, the debts of previous owners tied to the property could come back to haunt you.
Debts could include unpaid property taxes, fees from HOAs (Homeowners Associations), or bills for home improvement projects. If you were to skip the title search process, this means that you could potentially be unaware of these serious problems.
This is why most lenders require title searches and title insurance before they’ll set you up with a mortgage.
When To Get A Property Title Search
Title searches usually take place during closing. The closing process takes place after a buyer’s offer has been accepted but before the ownership of the home has officially transferred from seller to buyer.
However, a property investor will sometimes pay a title company to run a search, independent of the home-buying process. You might do this if you’re interested in a property and have reason to want to find out whether or not the property is free of any entanglements.
How Much Does A Title Search Cost?
A title search costs as little as $150 but as much as $1,000. This cost is dependent on whether or not you’re doing a basic land report or a full report of ownership and encumbrances. It can also vary by state and by how much information you’re looking for. The cost of title searches is typically included in closing fees.
How To Do A Title Search In 5 Steps
Now you should have a foundational understanding of what a title search is and what it’s used for. Now, it’s time to learn how to do a title search. We’ve broken it down into 5 steps:
Examine Chain Of Title
Check Property Taxes
Inspect The Site
Close The Deal
1. Examine Chain Of Title
A chain of title shows the ownership history of a property. When examining the chain of title, you should be able to view the current owner and prior owners, all the way back to the original owner of the property. You can obtain this information by looking up public records online. If you can’t find them online, try visiting your local recorder’s office.
2. Check Property Taxes
Next, check the taxes on the property to make sure they have all been paid. What you don’t want to find is any unpaid, overdue taxes. These can lead to a lien being placed on the property, which means that the government can put the property up for sale. Purchasing title insurance is one way to protect yourself.
3. Inspect The Site
After you’ve made sure that the property is free of unpaid taxes, you’ll want to schedule a property inspection. As an investor, you never want to skip this step. An inspection will reveal any irregularity or signs of easement. You want to make sure the property matches exactly what’s in the title before moving forward.
4. Uncover Judgements
Next, find out if the property’s current owners are under any judgments. This can include unpaid fees or dues that resulted in a lien. In such cases, the government could seize the property at any time and sell the property to recuperate amounts owed. If the title search reveals any judgments, work with the seller to remedy the situation if possible. Again, title insurance can be a great way to protect yourself.
5. Close The Deal
Last but not least, it’s time to close the deal! Ultimately, you want to make sure that the title search results are squeaky clean before finalizing your deal. This way, you can buy a property feeling reassured that legal issues won’t come back to haunt you. Once this process concludes, the title company will typically offer to sell you title insurance.
What If There Are Problems In A Title Search?
As a career real estate investor, you should expect to run into problems once in a while. Common title search-related issues could include things like:
Unpaid contractor fees
Easements on utility bills
Gambling or bet debts
Child support liens
Restrictions against the property
There are a couple of strategies to remedy such problems. First, you can work with the seller to pay off whatever debt they’re in so that they can clear the title. You can start by demanding that they do so, or you won’t put in an offer. Otherwise, you could negotiate a deal where you split the amount needed. Perhaps the deal is so sweet that you’ll even offer to pay all of their debts! It depends on each unique circumstance and what the buyer and seller incentives are.
The second strategy is to purchase title insurance. In case the title search misses anything or any past issues resurface, this insurance will protect you. Luckily, you won’t have to make monthly payments as you would with other types of insurance. Title insurance is paid for at closing, with a one-time premium.
Can You Do A Title Search Yourself?
You can do a title search yourself, but you might have a sense by now that it would be tricky and time-consuming. First, you’ll spend hours calling county offices and researching websites to pull public records, which can be a painstaking process in itself.
Then, you’ll need to have enough legal savvy to identify the proper documents, comb through them, and know what you’re looking for. Considering the opportunity cost of how you could have better spent your time, you are better off hiring a title search company or an attorney.
Knowing how to do a title search is a great way to protect yourself. As a real estate investor, you’ll be buying many properties throughout your career. Each time you strike a deal, you’ll want to mind your due diligence and make sure nothing will come back to haunt you. Title searches are usually done at the time of closing, and they’re carried out by experts. However, it’s good to know how a title search works and what kind of issues you’re watching out for so that you can hold the process accountable. At the end of the day, it’s always your job to make sure you’re protected and that you’re not setting yourself up for a bad deal.
After reading this guide, would you ever attempt to conduct a title search yourself? Why or why not? Share in the comments below!