WHAT IS A TITLE?
Title is the legal right to own, use, control, or dispose of real property. Transferring title to real estate is different from other ownership transfers, because land is permanent, and there will probably have been many different owners and different uses of that property over the years. Before you transfer real estate it is always prudent to perform a title search to determine that the title to the real estate is clear.
WHY IS HAVING A CLEAR TITLE IMPORTANT?
A title “defect” or encumbrance can impair your ownership rights. The heir of a previous owner can appear to make a claim on your land. A local power company might have been given an easement to use your property to install power. A mistake in the public records might have come about as the result of a forgery, or just be an error caused by similar names. Minors or mentally incompetent people might have signed documents, or there could be an incorrect marital status listed. In any event, if you are borrowing money with your property as the collateral, the lender will require proof that you have clear title.
STEP ONE: THE TITLE SEARCH
Protecting yourself begins with a detailed examination of the historical records concerning the property. That includes court records, deeds, and other public documents. The search will attempt to uncover any unpaid taxes, unsatisfied mortgages, any judgments against the seller, and any land-use restrictions – anything that might stop you from enjoying full rights to use that property. Even if the seller has title insurance, that does not protect the buyer.
STEP TWO: TITLE INSURANCE
Title insurance protects you (and your lender) from loss if there are any claims against your ownership rights. The insurance covers financial losses and legal costs, even any payments you might owe because of building and zoning ordinance violations. As a buyer, you should insure for the full purchase price of the property.