If you're delving into the world of real estate investing, understanding how to do a title search on property is crucial. This skill will help you identify any potential issues with a property before you make a commitment. Don't worry if you're unsure about how to do a title search on a property; you can always rely on a title search company or a lawyer. However, it's important to have a basic understanding of the process so that you can oversee it and comprehend the potential outcomes. This guide will provide you with the necessary information to get started.
What Exactly is a Property Title?
A property title is a document that specifies the rightful owner of a property. Only the person named on the title has the authority to sell the property. As an investor, it's crucial to verify this information to ensure that the person selling you the property has the legal right to do so. Things can become complicated if there are any liens on the property, as the property owner must settle these before making a sale.
What Does a Title Search Entail?
A title search involves examining public records to determine the ownership of a property. This search can uncover any liens on the property, as well as unexpected legal issues. It is a crucial step in the home-buying process, and not just for real estate investors. Mortgage lenders and other creditors also initiate title searches.
What Can a Title Search Uncover?
A title search can reveal various legal issues that may impact your decision to purchase a property. Some common issues include:
- Easements: These occur when a person other than the property owner has been given the right to use the property. It's important to understand the details of the easement and why it was granted.
- Covenants: Covenants impose restrictions on what can be built on the property. For investors, this could hinder plans for expansions or additional units.
- Caveats: A caveat indicates that another party has shown interest in the property. Knowing the details of competing offers can help you make a stronger case as the ideal buyer.
Title search companies and attorneys rely on various sources to conduct a thorough search, including property deeds, county administration land records, and various legal documents.
The Importance of a Title Search
Conducting a title search is a vital part of due diligence when purchasing property. Verifying the owner's title ensures that you are not inheriting any claims or liens on the property. Discovering unpaid taxes, HOA fees, or outstanding bills from previous owners could save you from future complications. Lenders typically require title searches and title insurance as a means of protection.
When Should You Get a Property Title Search?
Title searches usually take place during closing, after your offer has been accepted but before the ownership of the property officially transfers from the seller to the buyer. However, as an investor, you may choose to pay a title company for an independent search if you have a specific reason to ascertain whether a property is free of any legal issues.
How Much Does a Title Search Cost?
The cost of a title search can range from $150 to $1,000, depending on the complexity and level of detail required. This cost is usually included in the closing fees. It's essential to clarify the scope of the search and what you expect to receive for the price.
How to Conduct a Title Search in 5 Steps
Now that you have a foundational understanding of what a title search entails, let's explore the step-by-step process:
1. Examine the Chain of Title
The chain of title provides a historical record of property ownership. By examining this chain, you can identify the current owner and all previous owners. Online public records or your local recorder's office can provide this information.
2. Check Property Taxes
Ensure that all property taxes have been paid to avoid any surprise liens. Unpaid taxes can lead to the government selling the property. Title insurance is one way to protect yourself in this regard.
3. Inspect the Site
Schedule a property inspection to verify that the property matches what is stated in the title. This inspection will help identify any irregularities or signs of easements.
4. Uncover Any Judgments
Find out if the current owners of the property have any outstanding judgments or liens against them. These judgments could result in the government seizing and selling the property. If any judgments are discovered, work with the seller to resolve the situation or consider title insurance.
5. Close the Deal
Finally, if the title search results are satisfactory, proceed with closing the deal. This finalizes the purchase, ensuring that you are not exposed to any legal issues associated with the property.
What if Problems Arise During the Title Search?
Real estate investors should anticipate encountering occasional issues during a title search. These issues could include unpaid contractor fees, outstanding loans, easements on utility bills, bankruptcies, gambling debts, child support liens, restrictions on the property, or unpaid taxes. There are two strategies to address these problems:
- Work with the Seller: Demand that the seller pays off any outstanding debts to clear the title. Negotiating a deal where the buyer shares the financial responsibility could also be an option, depending on the circumstances.
- Purchase Title Insurance: This type of insurance protects you in case the title search fails to uncover any issues or if past issues resurface. Title insurance is obtained through a one-time premium payment at closing.
Can You Conduct a Title Search Yourself?
While it is possible to conduct a title search on your own, it can be time-consuming and challenging. Researching public records, understanding legal documents, and identifying pertinent information requires a significant investment of effort and legal expertise. Hiring a title search company or an attorney who specializes in this area is generally recommended for a more efficient and accurate search.
In Conclusion
Knowing how to do a title search on property is paramount in protecting your interests as a real estate investor. With multiple properties in your investment portfolio, conducting due diligence and ensuring a clean title is crucial. Although experts typically handle title searches during closing, it's important to familiarize yourself with the process and the legal issues you need to watch out for. Ultimately, it is your responsibility to safeguard your investments and avoid potential future complications.
Have you ever considered conducting a title search on your own? Why or why not? Share your thoughts in the comments below!
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