The purchase of real estate should in every case include examination of the title to the property. When a bank mortgage will be used to obtain purchase money, the bank will require a title search. Where the purchaser has the cash or will obtain private seller financing or a family loan, there is no legal requirement that the title be examined, but a wise purchaser will have an attorney or settlement agent perform a title search to protect the investment.
A title search consists of a review of prior owners of the property for a period of approximately sixty years past. This series of owners is known as the “chain of title”. This is found by research of prior deeds. Most deeds contain a reference to the last owner, which is stated with a citation to the deed book and page where that owner obtained title. Some deeds omit this reference, causing need for further research. The chain of title can become complicated, as where a large farm is divided into small lots. It is often difficult to ascertain where boundary lines fall. Many old deeds simply give a description using landmarks which may have disappeared, such as an old oak tree or a fence line. Or a deed may give only the names of neighboring property owners who are long gone, and may not give any size, length, or location of lines. A survey may be needed to solve these types of problems. Other complications can arise if the property passed through an estate by death of the owner. Records are not always available as to the identity of the legal heirs, or those heirs may not have signed deeds to convey their interests.
Each deed in the chain should be signed by all the title holders, including spouses. If marital status is not given, this can be a flaw in the title. Proper acknowledgment by a notary is also required.
When the chain of title has been established, then the researcher must examine various index volumes and computer records under the name of each and every owner to see if there are unsatisfied mortgages, judgments or other liens or debts outstanding against the property. Any such unpaid liens would also be flaws in the title.
A retained interest in a prior owner or an unpaid lien could cost the purchaser money to take legal action to correct the title, or in the worst case could cause the purchaser to lose the property. In many cases, it is possible to file a legal action called an Action to Quiet Title. Notice of the Action must be given to the interested parties, such as an heir who never signed off, or a mortgage holder who was paid but did not file a satisfaction. There must be a diligent search made to locate the interested parties, such as searches of telephone books, voter registration, tax records, historical files, church and cemetery files, etc. If it is not possible to find the interested parties after diligent search, then the Court may authorize service of notice by publishing in newspapers and legal journals. Notice may result in an interested party coming into Court to defend the Action. The outcome depends upon the facts in each
A cautious purchaser will require the seller to clear the title prior to buying the property. Occasionally, a purchaser may elect to close the purchase and require the seller to place a deposit in escrow to cover the cost of an Action to Quiet Title. But if the Action is contested by an interested party who prevails, the purchaser could lose far more than the escrowed sum. A purchaser is made aware of the existence of the title problem by way of a title search.
There are two means of protection available against undiscovered title problems. Title search work is very detailed and a problem could be overlooked by the researcher. The two forms of buyer protection are a title certificate or a title insurance policy. Most banks routinely require one of these and more commonly require title insurance. Title insurance is issued by one of several insurance companies, and is similar to other insurance: in the event of a loss due to a title defect, the insurance company will pay to the insured. Title insurance is most often issued in the amount of the purchase price of the real estate, but can be issued for just the amount of the loan. A title insurance premium is paid one time and the policy remains in force until the loan is paid off or the property is sold.
A title certificate is a written assurance provided by the individual attorney or law firm who reviewed the title. In the event a title defect later comes to light which should have been found in the search, the buyer can seek recovery from the attorney. A title certificate is usually slightly less expensive than title insurance. However, if the attorney who issued it moves away, dies or has no assets, then the certificate may not offer a remedy. Title insurance offers a more permanent form of protection.
Often a buyer will be interested in saving all possible expense, since the purchase is a major financial commitment. A buyer will occasionally elect not to have a title search performed, but this course is full of risk. Just as a purchaser would not buy a property sight unseen, he or she should not buy a title without investigation.