How a property title search works
A property title acts as legal certification that outlines the ownership details of an asset and defines the rights of the owner. When purchasing a large asset, such as a home or vehicle, transfer of the title from the seller to the buyer is required for the asset to officially change ownership. After the future mortgage payments are determined, buyers who settle on a new home will conduct a property title search, which involves a thorough review of the property’s ownership history and verifies that the current homeowner has the right to sell.
A title for a house guarantees legal ownership to the title holder and provides proof that the property is registered with the local government. If that property were to be sold, a title search would be conducted to confirm the seller does indeed have full ownership and the right to sell the home. The buyer would then obtain the property title and possession of the home would officially be transferred over.
However, all titles are not created equal. Depending on the type of asset and the history of ownership, different types of property titles can apply. These may restrict selling the asset due to outstanding liens and judgements against the property.
Deeds are often used interchangeably with property titles, but when selling or buying a home, it is very important to understand the differences between property titles and deeds.
Difference between deeds and titles
Unlike a deed, property titles are not a physical document, but rather a legal concept that describes the bundle of rights that come along with possession of property.
A deed is a signed document that describes the rights afforded to an asset’s owner, acting as a physical representation of the property title. When an asset is sold and the property title needs to be transferred, the deed is used as a legal means to facilitate the transaction.
These documents typically include a description of the property and will name the buyer and seller in the event of a transaction. For deeds to be legally binding, the document must be signed by both the buyer and seller and officially notarized. Depending on local regulations, witnesses to the signing may also be required for the deed to be filed as a public record.
If a deed is signed but falls short of these legal requirements, it is open to judgements or lawsuits that will complicate ownership of the property. These “imperfect deeds” can still operate as a transfer of property title, but their validity can be called into question if there are issues down the line.
What is a property title search
While a property title might seem that the owner has a right to sell, there could be liens or judgements against the property that can complicate the homebuying process.
Buyers should be well aware of the seller’s ownership status before moving forward with their purchase, which is why a thorough property title search should always be conducted and included in the homesale’s closing costs.
A property title search involves a close review of all documents related to the property. Previous owners may have encountered situations such as divorce or bankruptcy that could have altered the ownership status of their home, impacting the individual’s right to sell. By taking a comprehensive look at the property’s history, buyers can confirm that the seller is legally capable of moving forward without interruption from an invested third party.
In addition to gaining certified ownership details, a property title search will also reveal any legal restrictions or limitations as to how the property can be used. Local governments may have their own laws surrounding pet ownership, number of vehicles or securing personal loans for additional home renovation projects.
Once the title search comes back clear, buyers and sellers can move forward with the transaction. Title ownership would then be transferred to the buyer, along with the privileges that come with title ownership, otherwise referred to as the “bundle of rights.”
Bundle of rights
Possession of a property title comes with a bundle of rights that outline the legal privileges of the owner. These rights describe what the owner can legally do with the property within the confines of the law, such as reselling or limiting who can enter the property.
This bundle of rights is usually broken into several sections:
- Right of Control
- Right of Possession
- Right of Exclusion
- Right of Disposition
Right of control
This right states that the title owner has say over how the property is used, as long as it is legal and falls in line with any restrictions put in place by a local homeowners association.
The right of control gives the owner the freedom to use the property as their primary home, a guest house or however they see fit.
Right of possession
The right of possession defines that the property is owned by the title holder. If the mortgage is paid or cash is used to purchase the property, the owner has the right of possession. The title holder maintains possession as long as he or she pays taxes and abides by any homeowner association regulations.
If a mortgage is taken out by the buyer to secure funding for the home, then the lender has a lien against the property and effectively holds the title. Depending on the state in which the property is located, a mortgage lender or lienholder may be able to foreclose or take possession of the property if the buyer defaults on their monthly mortgage payments.
In this case, the mortgage acts a lien on the property and the buyer splits title ownership with their lender. The lender then has the right to decide to foreclose or repossess the property if the buyer defaults on their loan amortization schedule.
Right of exclusion
The right of exclusion gives the title holder the right to decide who may enter the property.
There are some exceptions to the right of exclusion. Law enforcement with a warrant waive this right, as do utility workers who are granted permission to enter a property to maintain equipment.
Right of disposition
This right of disposition grants the property owner discretion in transferring ownership of the title. Disposition is only fully granted when the home is owned outright and not partially owned by a lender or other party through a mortgage or lien.
A property owner with the right of disposition can transfer ownership either permanently or temporarily. This includes selling the property or renting to a tenant.
What does a title search cost?
The price for a title search depends on the type of home being researched. A title search for a typical single-family home can cost between $100-$250, while larger houses or different types of buildings can cost much more.
This cost is usually paid to a title search company, either through a real estate agent or to the organization directly.
A property title defines the rights of the title holder, details the ownership history and current ownership status of the home.
Before selling a home, a property title search is conducted to review any documents related to the home and reveal any third parties who may be vested in the property. These title searches verify the seller has the right to transfer title ownership and helps to ensure the bundle of rights can only be claimed by the holder.
For an additional layer of protection from title issues, new homeowners can purchase title insurance, which protects against any ownership claims made by someone in the future.