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What's
in a Title Search?
You've
decided to purchase a home and hope to take possession as soon as
possible. The terms have been agreed upon and all the financial
arrangements have been made. But there's one important detail remaining.
Before the transaction can close, a title search must be made.
The most accurate description of title is a bundle of rights in
real property. A title search is the process of determining from
the public record just what these rights are and who owns them.
A title search is a means of determining that the person who is
selling the property really has the right to sell it, and that the
buyer is getting all the rights to the property (title) that he
or she is paying for.
The search process can be undertaken by the title company in those
jurisdictions where the company maintains offices. In some areas,
however, searches are made only by practicing attorneys. However
the search is performed, in most real estate transactions today
a title insurance policy is purchased to assure the buyer that he
or she has purchased a valid title.
In those transactions where title insurance is involved, the title
company must determine insurability of the title as part of the
search process. This leads to the issuance of a title policy, which
insures the existence or non-existence of rights to the property.
The title insurance company will, at its own expense, defend the
title and will pay losses within the coverage of the policy if they
occur.
But what exactly, is involved in a title search? The Chicago Title
and Trust Family of Companies provides the following step-by-step
review:
Chain
of Title
This
is simply a history of the ownership of a particular piece of property,
telling who bought it and sold it, and when. The information may
be derived from public records - usually a County Clerk's or Recorder's
Office - or obtained from title plants privately owned and maintained
by title companies. There are great varieties of such plants - index
cards, punch cards, tract books, even sophisticated computerized
plants. However, they all contain essentially the same information
from which the history of the title may be secured.
Tax
Search
This
is a search to determine the present status of general real estate
taxes against the property. The tax search will reveal if taxes
are current or whether any taxes are past due and unpaid from previous
years. In addition, the tax search will indicate the existence of
any special assessments against the land and, if so, whether or
not these assessments are current or past due.
A due and unpaid tax or special assessment is a prior lien or claim
on the property above all others. If a buyer purchases property
with unpaid and past due taxes or assessments against it, he or
she is likely to find a government body - the village, county or
state - placing the property up for sale to pay those taxes or assessments.
A tax search reveals the status of
the taxes. Title insurance protects the buyer against loss from
unpaid and past due taxes and assessments.
Report
on Possession
In
many places where it operates, the CTIC Family sends inspectors
to look at the property to verify the lot size, check the location
of improvements, look for evidence of easements that are not shown
of record and check on who is living there.
The purpose of this is to supplement the information learned from
the title search. In the eyes of the law, any buyer of real estate
is assumed to have notice of all matters properly shown in the public
records as to that real estate as well as any information that an
actual inspection may reveal.
If the inspector detects an unrecorded easement or other evidence
of outstanding rights that could affect the owner's title and possibly
the value and intended use, the company tells the buyer of these
things before he or she closes the purchase. Those matters must
then either be disposed of or shown as exceptions in the title insurance
policy. Sometimes when an acceptable survey and appropriate affidavits
are received, an inspection will not be made.
Judgment
and Name Search
One
of the most important parts of the title search is to determine
if there are any unsatisfied judgments against the seller or previous
owners which were in existence while they owned the title. A judgment
is a general lien against the debtor's real estate and constitutes
security for any money owed under the judgment. The real estate
can be sold to satisfy the judgment.
It is extremely important to be sure that a title is not subject
to judgments against the seller or previous owners. Title insurance
provides this protection. A judgment against a person named Smith
may affect the title of a seller named Smith, depending on whether
or not they are the same person. So all possible variations of
the name must be examined.
For example, the name Smith might be spelled Schmidt, Schmid,
Schmidtt, Schmidz, Schmied, Schmiedt, Smid, Smythe, and so on.
The name Nichols can be spelled 73 different ways, from Nachols
to Nychals. The task is to determine which of these applies to
the owner in question. First names have to be checked, too. There
are 25 foreign forms of John, including Johann, Jehan, Hans, Shaun,
Gudi, and Efom.
Rights established by judgment decrees, unpaid federal income
taxes, and mechanic's liens all may be prior claims on the property,
ahead of the buyer's or lender's rights. If a judgment is discovered
that constitutes a defect in the title, it is pointed out, and
the seller must then eliminate it before the title of the new
buyer can be insured free and clear of that judgment.
Commitment
When
these searches have been completed, the title company issues a commitment
to insure, stating the conditions under which it will insure the
title. The buyer and seller and the mortgage lender can proceed
with the closing of the transaction after clearing up any defects
in the title which may have been uncovered by the search and examination.
The mortgage lender is as concerned as the buyer about the quality
of the title because the property is to be security for the new
mortgage loan. The mortgage lender requires assurance that it has
a valid first (or another acceptable priority) mortgage lien on
the property. This is not only common sense, but generally is a
legal requirement of regulated mortgage lenders.
The lender's title insurance, however, doesn't protect the new buyer
of the property. Although the land is the same, the interest of
the buyer and the interest of the lender are very different. The
provisions of a lender's title insurance policy are very different
from those of a buyer's policy, so the buyer should obtain his own
policy, often issued simultaneously with the lender's policy.
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