If you’re a homeowner, you know how much time and energy goes into buying or selling a home. And even if you aren’t, you’ve probably heard stories about both the stress and excitement.
Maybe surprisingly, even with all the time a potential buyer or seller must invest, there’s even more happening behind the scenes.
One of these processes is the title transfer. You probably know it’s happening, but how much are you aware of what a title company actually does?
Here are four things you should know about title work:
1. The Title Company Verifies the Property’s Title
One of the tasks a title company completes is making sure the property has a clear title that can pass on to the buyer. Here’s the general process:
The title company completes a search into the history of the property’s title. The goal is to verify that the current owner has the right to sell the house, meaning there are no other claims to the property.
These claims could take the form of unknown heirs, liens for unpaid taxes or loans, or a fraudulent title history.
Any of these issues will need to be resolved by the current owner before the property sale transfer can occur.
The title company might also conduct a survey of the property. This type of survey establishes the boundaries of the property.
The title company will be looking to make sure all parts of the house, including exterior features or buildings like a patio or shed, are within the property. They’ll also make sure that parts of a neighbor’s property aren’t encroaching on the land.
A title company may also take into account any easements, or occasions where another person has been allowed to use a part of the property.
Preparation of Title
Next, the title company will prepare a document that lists the history of the property’s ownership, and they’ll state whether or not they have found a clear title.
If the title is clear, the title company is willing to provide insurance on the title and a transfer of property can occur.
2. There are Two Types of Title Insurance
In addition to verifying a clear title, title companies also provide title insurance.
This insurance protects against any future issues with the property’s title. Essentially, this means that there could still be a chance, though small, that a person or entity could claim ownership of the property.
Lender’s Title Insurance
If you need to take out a mortgage to purchase the house, the lending company will require that you get lender’s insurance.
This type of title insurance protects the lender or mortgage company’s investment in the case of future title issues with the property.
If someone can prove that the seller did not have the right to sell the property, then any contested property rights battle will likely end in you, the current homeowner, losing the house.
With lender’s title insurance, your mortgage company will get back their investment.
Owner’s Title Insurance
Lender’s insurance only protects the lending company’s financial investment, not the homeowner’s.
In case of future title issues after the transfer of property, owner’s title insurance will protect your financial investment.
For example, if an unknown heir can prove that they are the rightful owner of the house, and that the seller did not have clear title to transfer the house to you, then you’ll be faced with the very unfortunate circumstance of losing your home. And you won’t receive any reimbursement for your financial investment in the property, unless you have owner’s title insurance.
3. Owner’s Title Insurance is Optional, but Still a Good Idea
A title company invests time and effort into accurately verifying a property’s title. But as you’ve just read, a title company offers title insurance for a reason: because unknown title issues could potentially still arise.
So while you can be very confident in your title company’s opinion of clear title, it’s still a good idea to invest in optional owner’s title insurance.
Even if there’s never a dispute over full property ownership, smaller issues such as unpaid taxes or payment to contractors may pop up, and you as the current property owner would need to pay them.
However, if you have owner’s title insurance, you’ll be reimbursed by the title insurance company.
New Door Property Transfer completes title work for homebuyers. For more information on the title services New Door offers, visit New Door today.