To understand the Title search process and its importance, you also would need to understand what is a title in property law. Plainly stated, the title to a piece of property is the evidence that the owner is in lawful possession of that property. The title affords the right to access and use the property.
What is a title search?
If you are buying a home and financing the property through a lender or financial institution, then a title search is initiated to establish the legal ownership and status of the property that you're purchasing.
Isn't the person selling the home the legal owner?
Yes, most of the time the person selling the home is the legal owner. However, a title search can uncover other parties that possibly have an interest in the home or other encumbrances that need settling before selling the home.
In some circumstances, such as a mishandling of the deed, fire or a lost document, it can be difficult to trace the properties history of ownership.
Maybe you had, at some time, passed by a home and wondered about its past history? In some ways, a title search is comparable to tracing your family tree.
The title search process
A title search is a process of tracking the records of a piece of property to disclose the chain of title. The chain of title will uncover the sequence of events in a property's history from the current owner back to any point in time, typically determined by the lender. Not only does a title search provide current ownership information, it will certify what person(s) or entity(s) have the right to sell the property. It will also identify if there are any encumbrances on the property. Encumbrances of real estate can be in the form of a mortgage, tax lien or judgment, although there are many other “clouds” that can be recorded against a property. Typically, encumbrances are satisfied prior to, or in connection with, the title transfer, unless the new owner “assumes” obligation(s) from the seller. The title search will also disclose any restrictions on the property and whether or not the property is included in a homeowner’s association (HOA).
Since errors in the recording of documents can occur, it is standard that the lender requires the buyer purchase a lender's title insurance policy on the property. Although not required, it is a recommended best practice to purchase an owners title insurance policy, which offers protection to the homeowner if a title defect surfaces after the buyer has taken possession of the property.