A title search is performed to confirm the party selling the property does in fact own it and has full right to sell it. It also confirms that there are not any existing liens on the property.
When you are using financing to buy a property the lender will require a title search, but even if you are buying a property with cash a title search should be done.
A title search consists of:
- Identifies owners of a property
- Property History
- Search for liens against a property and against owners of a property
Obviously we want all this to be verified because the last thing you want to do is buy a property that as a large tax lien on it or lien from a contractor, etc.
A standard sales contract should address this and state the property must have all liens resolved before the title can be transferred.
We want to make sure our behinds are covered and the easiest way to ensure a clean title is to make sure the below verbiage is in your sales contract because then title insurance will not be granted if there are any issues.
Generally the seller pays for the title insurance (referred to as the owner’s policy) and selects the closing agent (title company). You can see that box checked in the example below.
As a buyer you do have the option to select the title company (second box in above example), but then you will be paying for the owner’s policy.
Just so we are clear, Title Insurance is basically an agreement that the title is clean and if any issues prior to you owning the property arise after the fact the insure will bare the financial burden to remedy. Of course not every single scenario is covered by the insurance so be aware of what your policy does and does not cover.
The above contract verbiage states that all liens will be paid by the seller at or prior to closing in order for title to transfer.
Please Note – This does not cover liens from homeowner’s associations (HOA). That information is found in the estoppel, which we will cover in the next post.
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