Doing a title search and getting title insurance is a standard practice of the home buying process that many people are not prepared for, especially if they are buying a home for the first time. Prepared or not, lenders require buyers to get title insurance as part of the closing process.
From a buyer’s standpoint, it’s important to understand the value and importance of title insurance. More than just a requirement, title insurance is a necessary tool to protect against costly and unexpected dangers lurking on the title of the home in question.
With a better understanding of why a title search is done and why title insurance is so important as part of the closing process, buyers can feel confident when it finally comes time to sign on the dotted line.
Watch Out for Liens
One of the main things that real estate lawyers are looking for when working on closing a deal is whether or not there is a lien on the title of the property in question. A lien is a financial claim to the property, usually from the bank or lender that the previous homeowner used to purchase the home. Since the home is used as collateral to secure the mortgage, the lender wants to protect themselves in the event that the homeowner is unable to pay the mortgage.
These liens from lenders are not uncommon and not necessarily something to worry about. A title search will help confirm to the lawyer who the lender is so they can ensure payment is made out to the lender in order to discharge the lien and allow for the new homeowner to take ownership and, if needed, have their lender put a new lien on the title.
However, there are some occasions where a lien is on a title that is unexpected and could pose problems when completing the deal. Mechanic’s liens are an example of this. With a mechanic’s lien, it means that someone has done work or improvements on the house and was not paid within the agreed-upon timeframe. Builders and contractors will place a lien on the home to ensure it cannot be sold without their debt being paid off first.
This kind of lien does not necessarily have to turn a deal upside down and stop it from moving ahead. However, real estate attorneys need to ensure they pay out all liens and have the claims discharged before completing the deal. If the new owner were to take ownership with liens on the home, then they would become liable for the debt.
The Tax Man Cometh
Another title defect that will catch the eye of a real estate lawyer is a claim for unpaid or “back” taxes. Cities and counties have the right to place a claim for back taxes on the title of a property. In extreme cases, the property could eventually be sold at auction to recover the tax debt owed. However, that can be a drawn-out process and may not be completed by the time a house goes up on the market. With a title search, a lawyer can verify if back taxes are owed. Much like in the previous example of a mechanic’s lien, back taxes do not necessarily kill a deal on the spot. However, it does give lawyers an extra bit of work to do in ensuring that the taxes are paid before remaining proceeds are distributed to the seller.
If a title search wasn’t done and the buyer was unaware of back taxes, they would then become responsible for paying those taxes. Should they be unable to pay the tax bill, they could face the very severe consequences of having their home sold at auction by the county to cover the taxes owed. Needless to say, this would be a devastating experience for any homebuyer.
Other Hidden Details
Something that title searches will show are easements. These are incredibly common and typically apply to the utility lines on the property so they can easily be accessed by utility workers for repairs or upgrades. With that said, there are other easements that are less common and may be an important consideration for buyers before completing the closing process.
An example of a less common easement could be a private easement where the previous homeowner made an agreement with someone else for access to their property. For example, a neighbor may have been granted an easement to build a large shed across a portion of the property. This type of agreement could ultimately affect a new homeowner’s enjoyment of the property.
Some title defects are so hidden they won’t even show up on a title search. An example of this is a builder who places a lien for renovations done before the previous owner sold but it was not added to the property title before the closing. This kind of “hidden” danger in a title is exactly why lenders require title insurance and it’s strongly recommended even if a buyer isn’t working with a lender. A title search can only catch details present at the time of the search. Title insurance provides peace of mind for lenders and buyers in the event that a title search is unable to capture a very important detail.
Closing with Confidence
A title search and title insurance go hand-in-hand when closing. With a clean title and insurance to cover those unexpected events, buyers can move ahead with confidence when closing on their purchase.
Janus Title offers decades of combined industry experience as well as a technology-forward platform that makes the closing process fast, easy, and efficient.
To learn more or connect with the team on future deals, contact Janus Title today.