A title is a legal document that establishes ownership of property. Titles are used to reference ownership of real property, such as a home or a plot of land. In some instances, the title may establish ownership of personal property, such as a motor vehicle.
Having a clear title means that whoever is listed on the title is the legal owner of the property, and there are no liens or encumbrances connected with the property. A clear title permits the property owner to sell their property without a problem. The phrases “free and clear title,” “clean title,” and “good title” are also used to mean clear title.
What Are Examples of a Clear Title?
One of the steps taken during the closing process of a home sale or purchase typically includes hiring a title company. A title company assures the soon-to-be new homeowner that no one else has any ownership interest in the home. This step, evidence of a clear title, is essential to facilitate a smooth transition during the home sale and prevent future issues for the new homeowner.
Another example of when a clear title is required includes selling a car between private parties. Usually, if someone sells their vehicle, they must provide the buyer with a signed clear title. When a car loan is issued and not paid in full, a lien release must be obtained before a clear title is issued. It is essential to get a clear title. Otherwise, the bank that issued the loan continues to have legal ownership rights in the vehicle and can technically repossess it from the new owner.
How to Check for a Clear Title on a Property?
As a home buyer or seller, you can visit your local property records office or do an online investigation for the property’s title history. The research will tell you what’s in the official records, but it won’t tell you what isn’t there — and there may be other records that’ll need to be reviewed, as well, such as building permits and zoning rules, which can limit property rights.
When obtaining a mortgage, your lender will work with a closing agent, such as a lawyer, title company, or escrow agency, to perform a title search. Oftentimes, borrowers are asked to pay a fee for this search as part of the loan’s closing expenditures.
Issues With the Title and How to Determine Them
Given that property ownership is recorded in local records offices, it might seem as though there should be few if any, title defects. What can be incorrect with a property title?
First American Title Insurance Company, one of the largest in the U.S., has a checklist of some 70 possible defects, including:
- A forged deed
- An unknown divorce
- Unknown tax liens
- A disputed will
- Mechanic’s liens
- Zoning violations
While they’re not common, there can be expensive legal costs if the title search uncovers an issue (or if it doesn’t, but one comes up later). These situations are where title insurance comes in.
Your lender will demand the purchase of the lender’s title insurance, which covers the lender and protects up to the value of the mortgage if a defect is found. You may also be required to purchase the owner’s title insurance to protect yourself, covering up to the home’s purchase price.
With an owner’s title insurance policy, the title insurance company will pay any outstanding loan balance as well as your equity up to the purchase price in the circumstance of a victorious claim of ownership by another party. You can also get an inflation rider, so if the property’s value increases, so does the amount of coverage (up to a specific point).
Keep in mind that the cost of title insurance can differ extensively. In some places, title insurance costs are set by state regulators, while elsewhere, it can pay to shop around. When comparing your choices, always ask for the “reissue rate,” which is a discounted rate that may be obtainable in circumstances when the property was recently sold or refinanced.
Recognize, too, that while title insurance policies cover a lot of conceivable problems, they don’t cover all of them. If an issue does come up, it’s best to talk with a lawyer who specializes in real estate issues to settle any questions before you buy.
What Is the Distinction Between a Deed and a Title?
A deed is a legal, written document that allows for the transfer of a property’s title (in other words, ownership). Depending on local statutes and regulations, the deed must be filed and recorded at the local courthouse or another designated office.
As noted above, a title to property proves ownership. Someone who owns a home outright will have possession of both the property deed and the property title.
Why Is a Clear Title Important?
Title issues associated with a property can pose significant issues, especially when it comes time to sell it.
Title issues can include:
- Unresolved liens.
- Questions of heirship concerning previous owners.
- Potential inaccuracies concerning property surveys.
If there is a legal possibility of someone else also taking an ownership claim to the property, then the sale cannot go forth before these issues are rectified.
There are many scenarios wherein a clear title may not be as obvious as a potential property seller and purchaser realize during their transaction. An unresolved lien on a property means that an interested party, such as the bank that loaned the money to the prior homeowner, can take title to the property and foreclose on the property if payments were not made.
If a homeowner passes away, heirs can come forth and claim a right to the home or land left behind by the deceased. Another potential problem that can emerge is if a neighbor has questions about the accuracy of the property boundaries. The neighbor can potentially stake a claim to part of the property through proof of property surveys.
Most title issues that emerge during the sale of a property or home can be settled through the investigative work done by a title company. The title company will investigate all previous title claims and issues associated with the property. If any troubles surface, the matter will be further researched and resolved most of the time. These problems may slow down the closing process and delay the transfer of title from seller to the buyer.
Should I Call an Attorney with my Clear Title Questions?
Suppose you have questions regarding a clear title for a home, plot of land, or another type of property. In that case, it is a good idea to discuss your concerns and questions with an experienced, knowledgeable, local real estate attorney. They can best advise and assist you in avoiding unnecessary issues that may arise.
The purchase and sale of real estate and real property involve major investment decisions that can have a lifelong influence on all parties involved. Taking the extra step to discuss issues or potential issues with a real estate attorney is a sound investment that can bring you peace of mind.
Clear title concerns regarding other types of personal property, such as a motor vehicle, can also be addressed with an informed, local lawyer that can expedite and streamline the transfer of ownership.