Knowing how to do a title search is a critical real estate investing skill. It will allow you to discover potential issues with a property before you commit to it. If you’re worried that you don’t know how to do a title search on a property, don’t worry. You can go through a title search company or a lawyer. It’s still important for you to understand how title searches work, so you can oversee the process and understand the potential outcomes. This guide will help you get started.
A property title is a document that names the rightful owner of a property. Only the person on the title has the right to sell the property. As an investor, you need this information to ensure that the person selling you a property is, in fact, within their rights to do so. This can get a little complicated if there are any liens on the property. The property owner has to settle any liens or claims before they can rightfully make a sale.
A title search is simply the process of examining public records to determine a property’s ownership. The search can uncover whether or not there are any liens on the property. Other unexpected legal issues can also come up, which we’ll go over next.
Conducting a title search requires sifting through a lot of legal documents and public records. The purpose is to uncover as much available information as possible so that the buyer can make an educated purchase decision. Other than real estate investors, mortgage lenders and other creditors also initiate title searches.
As mentioned before, a title search can uncover some unexpected legal issues. As an investor, you want to know of these right away. Ideally, these issues are addressed and resolved before the transaction goes through. In some cases, the legal issue can be enough reason to walk away. Your lawyer or title search company can help assess the gravity of the following common legal issues:
Title search companies and attorneys rely on the following sources to conduct a title search:
Title searches usually take place during closing. The closing process takes place after a buyer’s offer has been accepted but before the ownership of the home has officially transferred from seller to buyer.
However, a property investor will sometimes pay a title company to run a search, independent of the home-buying process. You might do this if you’re interested in a property and have reason to want to find out whether or not the property is free of any entanglements.
A title search costs as little as $150 but as much as $1,000. This cost is dependent on whether or not you’re doing a basic land report or a full report of ownership and encumbrances. It can also vary by state and by how much information you’re looking for. The cost of title searches is typically included in closing fees.
Now you should have a foundational understanding of what a title search is and what it’s used for. Now, it’s time to learn how to do a title search. We’ve broken it down into 5 steps:
A chain of title shows the ownership history of a property. When examining the chain of title, you should be able to view the current owner and prior owners, all the way back to the original owner of the property. You can obtain this information by looking up public records online. If you can’t find them online, try visiting your local recorder’s office.
Next, check the taxes on the property to make sure they have all been paid. What you don’t want to find is any unpaid, overdue taxes. These can lead to a lien being placed on the property, which means that the government can put the property up for sale. Purchasing title insurance is one way to protect yourself.
After you’ve made sure that the property is free of unpaid taxes, you’ll want to schedule a property inspection. As an investor, you never want to skip this step. An inspection will reveal any irregularity or signs of easement. You want to make sure the property matches exactly what’s in the title before moving forward.
Next, find out if the property’s current owners are under any judgments. This can include unpaid fees or dues that resulted in a lien. In such cases, the government could seize the property at any time and sell the property to recuperate amounts owed. If the title search reveals any judgments, work with the seller to remedy the situation if possible. Again, title insurance can be a great way to protect yourself.
Last but not least, it’s time to close the deal! Ultimately, you want to make sure that the title search results are squeaky clean before finalizing your deal. This way, you can buy a property feeling reassured that legal issues won’t come back to haunt you. Once this process concludes, the title company will typically offer to sell you title insurance.
As a career real estate investor, you should expect to run into problems once in a while. Common title search-related issues could include things like:
There are a couple of strategies to remedy such problems. First, you can work with the seller to pay off whatever debt they’re in so that they can clear the title. You can start by demanding that they do so, or you won’t put in an offer. Otherwise, you could negotiate a deal where you split the amount needed. Perhaps the deal is so sweet that you’ll even offer to pay all of their debts! It depends on each unique circumstance and what the buyer and seller incentives are.
The second strategy is to purchase title insurance. In case the title search misses anything or any past issues resurface, this insurance will protect you. Luckily, you won’t have to make monthly payments as you would with other types of insurance. Title insurance is paid for at closing, with a one-time premium.
You can do a title search yourself, but you might have a sense by now that it would be tricky and time-consuming. First, you’ll spend hours calling county offices and researching websites to pull public records, which can be a painstaking process in itself.
Then, you’ll need to have enough legal savvy to identify the proper documents, comb through them, and know what you’re looking for. Considering the opportunity cost of how you could have better spent your time, you are better off hiring a title search company or an attorney.
Knowing how to do a title search is a great way to protect yourself. As a real estate investor, you’ll be buying many properties throughout your career. Each time you strike a deal, you’ll want to mind your due diligence and make sure nothing will come back to haunt you. Title searches are usually done at the time of closing, and they’re carried out by experts. However, it’s good to know how a title search works and what kind of issues you’re watching out for so that you can hold the process accountable. At the end of the day, it’s always your job to make sure you’re protected and that you’re not setting yourself up for a bad deal.