During the home buying experience, it's likely that you'll dream up a few nightmare scenarios. One of those scenarios might be that — surprise! — the seller doesn’t have the right to sell you the house you're about to buy.Don't worry, though. The home buying process has a few fail-safes in place to make sure the property you're about to buy is owned by the person who's about to sell it to you. A title search, title report and title insurance are all components of the home buying and closing process. Although each one is different, they come together to form a larger whole.Here's everything you need to know about a title search, title report and title insurance — including how they work together.
What is a Title Search?
A title search is pretty much exactly what it sounds like. Someone, usually a title company, exhaustively searches through the public records to figure out who owns the property, if there are any judgments against the owner and if there are any liens or encumbrances against the property. More than that, the title search helps confirm if the seller or owner of the property legally has the right to sell it to you. The title search can also unveil any potential issues that would make buying and owning the property more expensive for you, or possibly even cause you to lose the home or have to legally defend your rights to the home.
How Is a Title Search Conducted?
Usually, performing a title search involves examining public records and looking for information on the property itself, as well as information on the current owner. A few places where a title company might look when performing a title search can include:
- The county tax assessor's office
- The county property appraiser’s office
- The county court records
- The county public records
- Surveyor’s records
What Is the Goal of a Title Search?
One of the main goals of the search is to verify that the person who's selling you the property owns it. But that's just one component. The title search should also reveal if there are liens on the property that haven't been discharged. A lien on a property means someone else or a company has a claim on it, either for the entire value of the property or just part of it. If the current or previous owner had some trouble with debt, the person or company they owed money to might have put a claim on their house.That can spell trouble for a buyer. If the ownership of the house transfers to them with the lien in place, they are likely to get stuck paying the original owner's debts. A lien can also prevent the sale of the property from going through entirely.Another important fact a title search can uncover is whether or not the current owner of the property is up-to-date on their property taxes. Just as you don't want to inherit a random lien from a previous owner, you also don't want to inherit their back taxes.
Can You Do a Title Search Yourself?
Since performing a title search involves searching through public records that are accessible by anyone, you might wonder why you'd even need to hire someone to perform the search in the first place. Technically, you can perform the search on your own. However, title companies pay to access to a title plant, which is a certified database of records showing all information about a property for the past 30 years or more. This gives them access to higher level data than the public and that data is certified and backed by the title plant. If a person searches online and a lien or encumbrance is missed, they’re on their own as far as liability and legally defending their position.It's in your best interests to hire a professional title company to handle the title search and everything else related to the title of the property you're looking to buy. For one thing, if you perform the search — and you're not 100 percent sure what you're looking for — is going to be a significant challenge and investment of your time to learn how to properly examine the title and identify potential issues. In addition, the time it takes you to examine all the records and documents will most likely be much more than you'd expected - and the bottom line, a title company will not insure the title based on a search and examination performed by a buyer.Remember: just because you can "DIY" something doesn't mean that's the best or even a viable option. For peace of mind and verification that you won't have any issues after closing, you're better off hiring a title company to handle the title search as well as all other aspects of the closing process.
What Is a Title Report?
The title report is the magnum opus that comes out of the title search and examination process. All the information your title company uncovers during the search and examination gets printed out in the title report.The title report isn't going to be the most engaging thing you've ever read. But, while it's not the next New York Times Bestseller, it's going to contain incredibly valuable information to determine what's needed to clear the title. Reading and understanding its contents is a must if you want the 411 on the property you're thinking about buying. Generally speaking, the title report includes several different sections, each of which shines a different light on the health and status of the property.The sections often include:
- Property and Owner Information. This section includes the current owner’s name, the property address and the property folio number – the tax number issued by the county.
- Legal Description. The legal description is the address the county uses to locate the property. This section is going to be a bit more in-depth than an address and often a bit trickier to wrap your head around. You're going to find some legalese in it, so it's a good idea to have a professional around to help you decipher it. The legal description is what all liens and/or encumbrances are recorded against, not the property address. The property address is what the USPS uses to deliver your mail.
- Liens and Encumbrances. In a perfect world, this section of the report would be short or non-existent, but if the previous or current owner of the house has any outstanding debts that have been recorded against the property, they will appear here. The liens (if there's more than one) will usually be listed with the largest one appearing at the top. When the sale of the property goes through, the proceeds from the sale get distributed to the lien holders. That might not be a big deal if there's just one lien listed, but if there are a lot of claims or the house is being sold for less than the total value of the liens, you're likely to run into problems.
- Tax information. If the current owner of the property owes any back taxes, the transfer of the title can't go through. If there are taxes owed, they are the first thing that gets paid, before any other lien holders.
- Easements. In some circumstances, other property owners can get access to specific areas of your property. That access is known as an easement. It can include giving utility companies access to your property for power lines and the like.
- Restrictions, historical rules, oversights. If you're buying a house in a historic district, your title report might include a section outlining the rules and restrictions placed on you as a homeowner. For example, you might be limited in the types of changes you can make to the facade or exterior of the building.
- Covenants, Conditions and Restrictions. The covenants, conditions and restrictions (CC&R) section of the title report is usually reserved for condos and other types of planned developments. The CC&R outlines the rules and regulations of the condo or homeowner's community on the owner of the property, such as whether you have access to certain common areas or whether you're expected to contribute to the maintenance and upkeep of certain public areas.
One very important fact to note about a title report is that is does not determine marketability or insurability of title. Meaning that a title company has not reviewed the chain of title to determine if it’s marketable without any defects in the chain of title or that the title is actually insurable based on the findings of the title search.If you purchase a property based on a title report, you are basically assuming all liability and responsibility of defending the title if contested. This is where title insurance comes into play.
What Is Title Insurance?
Here's an important fact about title reports and title searches: Title companies tend to find problems in about 25 percent of residential real estate transactions. For the most part, the current owners of the property may not even realize there's a problem with their title.That's where title insurance is important. Title insurance is a layer of protection for the buyer and lender (if applicable) in case there are any issues with the title or should some other party appear to have a stake or claim on the property's title.Two types of title insurance exist: Owner's title insurance, which covers you as the owner, and lender's title insurance, which covers the lender’s interest. The party responsible for paying for the policy depends on location of the property and the real estate contract you've signed. For example, in some parts of Florida, title insurance (and paying for the title search) is customarily the responsibility of the seller. But in some counties in Florida, the buyer customarily pays for the title insurance during the closing process. Usually, there's some room for negotiation when it comes to who pays for what. Again, the final say about who pays is determined by the real estate contract you've signed.
Do You Need Title Insurance?
You might wonder why you need title insurance if the title search and the title report didn't uncover any particularly concerning issues. That might be true, but there are cases when a property has hidden title issues. For example, perhaps you purchased a property from a person who is divorced. After the sale of the home, that person's former spouse suddenly reappears, claiming they also had an interest in the house and that their ex-spouse had no right to sell it to you.Title insurance to the rescue! Spousal claims are one of the things commonly covered by a title insurance policy. If the spouse is found to genuinely have an ownership stake in the house, then the policy would cover whatever costs are associated with paying them off.In Florida, another common title issue is probate. Florida is the capital for retirees, so you can assume it’s the capital for probate matters as well. Imagine a person who thinks they inherited the property sells it to you, and then you receive a letter from their sibling who also thinks they inherited the property. Again, title insurance to the rescue!If you only have a lender's title insurance policy, then only the lender would be covered if someone appears who has a legitimate claim on the property. However, if you have both a lender's and an owner's title insurance policy, you would be reimbursed and protected for any losses if that an ex-spouse or sibling stakes a claim against the property.
How Much Does Title Insurance Cost?
The cost of title insurance varies based on the total value of the property, at least in Florida. If the home costs up to $100,000, the title insurance premium will be $5.75 per $1,000. For a home that costs more than $100,000, the cost is $5.00 per $1,000 for the amount over $100,000. So if your house costs $200,000 you (or the seller) would pay $1,075 for your title insurance premium. It's worth noting that you only have to pay the premium once, at closing.
Title Search vs. Title Report vs. Title Insurance
A title search, title report and title insurance — are they all parts of a larger whole or can you have one without the other? When you're preparing to close on a property, it's a good idea to think of a title search, title report and title insurance as a table with three legs. You can't have title insurance without a title search and title report, for example.Let's take a closer look at the differences and similarities between the three.
Differences Between Title Search, Title Report and Title Insurance
A title search is a process. Someone needs to perform a title search and examination. On the other hand, title reports and title insurance are both products that a title professional produces. Your title company produces the title report as a result of the title search and examination. You (or the seller) then purchase the title insurance to protect yourself against any possible claims on the property's title.
How Does a Title Search, Title Report and Title Insurance Work Together?
Let's say you've hired a title company to work with during the closing process. The company has completed the title search, examined the title and prepared the title report. It mostly contains good news: there are no major liens on the house, no judgments against the owner and the owner doesn't owe back taxes. Since everything looks good, you consider skipping a title insurance policy. You're assuming you're in the clear because there weren't any major concerns on the report or uncovered during the title search.But it's important to remember that there are hidden issues that even a very detailed title search might not uncover. The former spouse who still has a claim to the property or a sibling claiming ownership because of probate are just two examples. Another potential hidden problem might be a name mix-up or a forgery on the part of the previous owner or even a complete fraudster who doesn't have any legitimate right to the property trying to cash out on the sale.There's no way to predict if there will be hidden problems with a property or what they might be. Not purchasing a title insurance policy that protects you, the buyer, leaves you vulnerable and liable to defend the title to the property. Remember the table: not having a title insurance policy is like having a table with just two legs: It's not going to stand on its own.
Choosing a Title Company
Finding a title company to perform the title search and examination, prepare the title report and provide the title insurance policy is a key part of the closing experience. When looking for a title company, it's a good idea to find one who will work closely with you throughout the entire process. You don't want to feel as if you and the seller are being handed off into the black hole of no communication and updates. You want a team who will be with you each step of the way and provide access to your transaction 24/7. Working with a legitimate and trusted company also helps to ensure your closing experience is as professional, engaging and memorable as possible.In Florida, since 1995, many buyers and sellers have chosen Title Partners of South Florida to guide them through the closing process. Our team handles every part of the closing process and we strive to make the entire experience as professional, engaging and memorable as possible. To learn more about us, get in touch today or give us a call at (954) 566-6000. You can also reach out to us for a free, no-obligation quote.