Learning how to do a title search on a property is an important part of real estate investing. This process helps buyers ensure everything is above board before they commit to an investment property. While the title search can be carried out by a title search company or an attorney, it’s still important for real estate investors to know the ins and outs of this process. In this article, we will show you how to do a title search in five simple steps.
What Is a Title Search?
Buying your first rental property comes with the necessity to understand and carry out several processes. One of the most important ones is the title search. To put it simply, this is an examination of public records that aims to confirm a property’s ownership. The search also reveals any claims that are made on the property. Besides real estate investors, a search can also be undertaken at the behest of mortgage lenders and other credit-issuing entities.
The process requires sifting through a considerable amount of legal documents and public records. A proper search reveals a host of essential information such as the identity of the owner, judgments on the property, loans, and taxes due.
The Legal Issues That a Title Search Can Uncover
On top of confirming property ownership, this process can reveal a number of issues before the real estate transaction is finalized. Some of the irregularities that you can uncover can be serious enough to halt the deal whereas others can be quickly addressed by the seller. This is when having professional assistance can be valuable. A professional will be able to assess the gravity of these problems and recommend the proper course of action to fix them. Here’s some additional information that a search can uncover:
- Easements: This is when someone other than the owner is given the right to use the real estate property.
- Covenants: These are restrictions that limit what you can build on the land.
- Caveats: This is a warning that another party has an interest in the real estate property.
Neglecting to do a title search on a house can prove disastrous for real estate investors. Buying an investment property that is plagued by these unresolved claims will have a negative impact on the property’s ability to generate consistent rental income and positive cash flow.
Related: 5 Legal Real Estate Investing Tips to Know Before Buying a Property
How to Do a Title Search: 5 Simple Steps
As we have stated above, this process can be quite complex and tedious. Consequently, doing your own title search presents several risks. You could easily miss the small details that only an experienced professional can uncover. Having said that, knowing the steps that ensure a clear title before buying property for investment is essential for all investors. Below is a detailed overview of the five steps of the search process.
1 – Examining the Chain of Title
A chain of title is a sequence of historical transfers that reflects the historical ownership of the investment property. This chain should extend from the current owner to the original owner of the property. Generally speaking, you can obtain a chain of title from the public records that are available in the recorder’s office or even online.
It is important to note that the chain must be complete for the title to be clear. Any missing part could indicate that some deed forgery has occurred at some point in the history of the property. This break in the chain can also be caused by minor issues such as a previous owner using a different name to acquire the title. The best way to resolve these issues is to go through a quiet title suit.
2 – Checking the Taxes on the Property
After confirming property ownership, taxes are the next thing you should look at. This search is the only way to check if the property’s taxes are in order. Checking tax history will reveal if there are any taxes that are overdue or unpaid. This is extremely important because unpaid taxes can create a lien against the property. In the worst-case scenario, the government might put up the investment property for sale to recoup these taxes. Getting title insurance can help mitigate this risk.
Related: Real Estate Taxes: Everything a Beginner Investor Needs to Know
3 – Inspecting the Site
Inspecting the premises is an important step that complements the search. The individual tasked with the inspection should report any irregularities that might impact the title. Moreover, the inspection will confirm if the property matches what’s in the title. This includes checking the size of the property and looking for any sign of easement.
Related: Why You Should Get a Home Inspection Before Investing in Property
4 – Carrying Out a Judgment and Name Search
The goal of this step is to uncover any judgments against the previous owners of the property. This includes any liens that relate to unpaid obligations. The existence of these liens means that the government has the right to sell the property at any point to satisfy the judgments. In simple terms, these judgments supersede the buyer’s right over the property. If the search uncovers such judgments, the seller should remedy the situation as quickly as possible. It is also worth noting that title insurance can protect buyers and lenders against this type of judgment.
5 – Closing the Deal
After making sure that the title is clear, the final step is finalizing the transaction. The buyer can then begin the process of acquiring the property safe in the knowledge that all the legal hurdles have been cleared. The title company typically issues a commitment to insure after the process is completed.
The Bottom Line
Following the steps outlined above is the most effective away to ensure the legality of your real estate investment. Even if you plan on hiring a professional, having an idea of how to do a title search provides a valuable look into various legal aspects of the real estate business.
Now that you’re familiar with this process, you can start searching for investment properties right now! Use Mashvisor’s property finder to uncover the best investment opportunities in your area. Click here to discover this amazing tool.
