You say you own that black Mustang convertible? Prove it!
Generally you have a bill of sale, or the certificate of titleTitle refers to the ownershipOwnership is the absolute right to use, enjoy, and dispose of property. You own it! of a particular piece of property.A Certificate of Title is the document or instrument issued by a local government agencyAgency is a term used to describe the relationship between a home seller and a real estate broker, or a home buyer and a real estate broker. to an owner, naming the owner as the owner of an automobile or boat. When the item is sold, the certificate of title is transferred to the buyer. The agency then issues a new certificate of title to the buyer. to an item that you own, whether it be a computer or the car. In the case of a car, your ownership is registered in your name with the state in which you live.
Proving that you own a home, however, is a little more difficult.
How do you prove the seller owns the home you want to buy? You conduct a title search.
During a title search, the examiner (who may be an attorney or who might work for a title companyA Title Company is the corporation or company that insures the status of title on real estateReal Estate is land and anything permanently attached to it, such as buildings and improvements. (called title insuranceTitle Insurance is insurance that protects the lenderA Lender is a person, company, corporation, or entity that lends money for the purchase of real estate. and the property owner against losses arising from undisclosed defects or problems with the title to property.) at a closing, and may handle other aspects of the real estate closing.), looks at the chain of titleThe term Chain of Title refers to the lineage of ownership of a particular property. of a home, working backwards from owner to owner until it reaches the pointA Point is one percent of a loan amount. where the land was originally granted or sold from the local or federal government to the original owners or developers.
If title has been recorded correctly, you should be able to trace the lineage of a piece of land all the way back to when that area of the country was settled.
(As with many of our real estate laws, we derive our methods of recordingRecording is the process of filing documents at a specific government office. Upon such recording, the document becomes part of the public record. title from our English cousins, whose records of property ownership stretch back 1000 years or more in some cases.)
How the title search is carried out varies from county to county and depends on what kinds of records have been kept. In the past 10 years, many of the records used to document ownership, including records of deaths, divorces, court judgments, liens, taxes and wills, have been put online, and that has really sped up searches.
Lawyers, title company or title specialists can look through the chain of title to discover if there are any problems that could prevent title from passing from the seller to the buyer. These problems are called “clouds” in title industry jargon.
The lender wants to know if there have been any liens (a claim made against a property by a person or tax assessor for the payment of a debt), or judgments (by a court of law) or easements (rights of others to use a portion of your land) filed against the property, which might prevent a buyer from receiving good title.
For example, when Susan and Steve bought a house in suburban Detroit, they had the land surveyed. When they actually moved into the house, they discovered that years earlier, a neighbor had built a garage that took about 5 feet off the side lot of their property. The surveyor should have noted that the garage encroached on their property in the survey report.
Because of the encroachment, the title Susan and Steve received wasn’t “clean” title because the encroachment created a defect on their title. In other words, someone was using their land without their permission.
Susan and Steve had bought title insurance for themselves as well as for the lender, which insures the buyer and the lender against a cloud on title. The insurer did some research and eventually reimbursed the owners for the portion of the land that they paid for but to which they didn’t receive good title.
If the insurer catches the problem (in this case, an encroachment), the buyer is notified and then has the responsibility to take up the issue with the seller before closing.
But what happens if the seller really isn’t the seller? If a long-lost relative of the seller’s turns up with irrefutable evidence (say, a recorded deed from the property’s original owner) that she actually owns the home, you might have to turn over your home to that relative.
Since the title search should have turned up this information, but didn’t, title insurance protects the buyer and lender from any losses associated with the cost of any errors made, up to the value of the policy, usually the purchase price.
Lenders will insist that you purchase title insurance that covers the lender up to the amount of the loanA Loan is an amount of money that is lent to a borrower, who agrees to repay it plus interestInterest is money charged for the use of borrowed funds. Usually expressed as an interest rate, it is the percentage of the total loan charged annually for the use of the funds... The simple reason is that if it turns out that you don’t really own the home, then the collateral you’ve given the lender in return for your mortgageA Mortgage is a document granting a lien on a home in exchange for financing granted by a lender. The mortgage is the means by which the lender secures the loan and has the ability to foreclose on the home. (your home) isn’t yours and there is no collateral.
In many states, title insurance is regulated by the state government. With no competition, title insurance prices in these states are very high. In states where title insurance is unregulated, competition drives the marketplace and prices are relatively low.
Remember, when you purchase a lender’s policy, it only covers the lender, not you. Even if the cost of title insurance is high in your state, you should purchase an owner’s policy as well. Otherwise, if something goes wrong, you could lose your home and your home equityYour share of ownership in a company. Stockholders are often referred to as equity investors, because they invest in the equity of a company. as well.
Finally, in some states, the buyer pays for title and in other places, it’s the seller’s obligation. Check with your real estate attorneyA Real Estate Attorney is an attorney who specializes in the purchase and sale of real estate. or broker about the local custom in your community.
Also, some online lenders aren’t aware of whose responsibility it is to purchase title. If the good faith estimate you receive from an online lender appears a little high compared to other quotes you’ve received, check the title charges. It could be you’re being charged for title insurance when it is the seller who normally picks up that cost in your area.
May 3, 1999.