A title company's role is to verify that the current owner can legally transfer ownership to the home buyer --essentially, making sure the seller has the right to sell the property.
In this blog, we'll go over how a title company determines legal ownership and the process of transferring the title.
Although they may sound like the same document, a deed and title are very different. A deed is a legal document used to transfer the property from the current owner to the new owner. It's signed on the day of closing.
On the other hand, the title is a document stating who owns the property and whether there are any roadblocks to transferring the deed. When you're buying a new property, it's the title company's job to make sure the title is free of potential ownership claims before ownership is transferred. They do this by conducting a title search.
The title search looks for potential obstacles to the transfer of ownership.
Primarily, it determines whether others have rights to the property. However, a title search also looks for:
Outstanding Mortgages or Other Liens: All liens must be paid off at closing before the title can be transferred. This includes home equity lines of credit, unpaid tax liens, or possibly a loan taken out for a home construction project.
Unpaid HOA Fees: Consequences will vary as to what will happen if HOA fees are left unpaid --some stipulate that they can foreclose on a home if there are outstanding dues. Whatever the case may be, HOA fees must be paid before transferring the title.
Judgments: It's possible to have a judgment that must stay with the property and not necessarily the previous owner. An example of this would be unpaid contractor fees and a judgment in the contractor's favor.
Property Survey: The title company may order a survey to see if there are any encroachment issues and to verify that the home is within its boundaries.
An abstract of title outlines the property's ownership history and will also include things like inheritance and court litigations.
An opinion of title is a legal document written by the title company. It states whether they believe the seller has a clear and valid claim to the property and whether they feel confident about insuring the title. Note that a lender will always require insurance on the title. This is also known as a lender's title policy.
An owner's title policy, however, is optional but recommended. Here's why.
Here are reasons to consider purchasing the optional owner's title insurance:
If the home has changed hands a lot. A long list of past owners increases the risk that information was missed during a previous title search, and a past owner could still have rights to the property.
If you can't afford legal fees to dispute other claims to your property. Even if the claim has no merit, the legal fees to litigate can be expensive.
Peace of mind. Know that your investment is always protected. Even if it turns out that a previous owner has a legitimate claim, you'll still have the funds to buy a new property.
Now that you know the basics of what a title company does, it's time to secure a mortgage with confidence. Start the process online from our website or call us today!