Understanding The Title ProcessIt’s a good question. After all, until you go to buy your first home, you might not even understand what a property title really is. Some people easily confuse a title with a deed. So, what’s the difference? A deed is a physical, tangible document that indicates the transfer of ownership from the buyer to the seller. When you close the deal on a home, the seller signs the deed, and then the buyer signs the deed. Just like that, the transfer of ownership is complete.
Like the deed, the title represents ownership. But unlike the deed, the title doesn’t represent the transfer — it just signifies that the owner of the house has a legal right to own it.
If that sounds confusing, don’t worry — it just means you haven’t considered all the worst-case scenarios that could play out when you’re buying a home. And when you’re making what’s likely to be the biggest financial investment of your life, you don’t want to run into any worst-case scenarios.
Worse Case Scenarios“Wait,” you’re thinking. “What worst-case scenarios are we talking about here?”
Namely, that the seller doesn’t actually own the property and they don’t have a right to sell it. Imagine this scenario: You buy your dream home and move into it, but after you’ve been living comfortably for a little while, you find out that the previous owner wasn’t paying property taxes. The IRS claims they had no right to sell the house to you, so the house is technically no longer yours.
Or they weren’t paying their homeowners association dues, and the association can now choose to foreclose on the property unless you — as the current owner — make good on those unpaid dues.
“That can happen?” you’re thinking.
Yes, unfortunately that can happen — and it does.
Title SearchThat’s why when you put in an offer on a piece of property, and the seller accepts your offer, you will then need to have a title company do what’s known as a title search. The title search encompasses a full, in-depth examination to make sure that the person who’s claiming ownership of the property (in this case, the seller) actually has ownership.
The title search will encompass the following items:
- A mortgage history, to make sure the seller has been in good standing on their mortgage and has not missed any payments. Any outstanding part of the mortgage must be paid off at the time of closing.
- A look into any liens or judgments that might be on the property for work that was done or appliances that were installed. These could be things like an HVAC system or solar panels that the seller is still paying off, or it could be for contract work like painting, flooring, or landscaping. If there is any debt, it must be resolved before the property can change hands.
- An examination of HOA dues and property taxes to make sure that the seller is up to date and has not deferred on any payments that might compromise their ownership.
So, What’s Title Insurance?A title company will also assist a buyer in getting set up with what’s known as title insurance. It’s important that there is an owner’s policy for the buyer and lender’s policy for the bank or mortgage company. In the event that there are any disputes that come up in the years ahead, this insurance will protect the owner and the lender from any associated legal fees.
For example, imagine that the title company does not uncover any unpaid HOA fees during its title search. The sale proceeds to closing, and no unpaid fees need to be resolved. But then the HOA comes forward and claims that there indeed is a debt associated with that property — what’s a new owner to do? You could take the HOA to court, but even if it’s discovered that the HOA was in the wrong and making a faulty claim, you are still out those legal fees you needed to pay to protect yourself — that’s where title insurance comes in to cover those expenses.
When you’re choosing a title company, take a look at their experience and how they rank with the Better Business Bureau to ensure you’re working with a company that knows what it’s doing and is prepared to handle your particular situation.
Our trusted partner, Flynn Title, prides themselves on taking care of their clients and providing them with a thorough title search. Reach out to them if you have questions by calling 301-545-0150.
Please consider The Myers Team your resource for all things real estate. We have over 35 years of real estate experience, specializing in (but not limited to) the Montgomery County area. If you are refinancing, want a recommendation, need a service provider or just have a home related question, please give me a call at 301-910-9910 or email me at email@example.com.