Buying your first home is a very exciting milestone in your life, but there are many financial and legal considerations before you take the plunge. One aspect of home-buying that many people don’t know about or fully understand is the concept of real estate titles. This guide aims to demystify real estate titles, explaining what they are and what they mean for you. It also explains how title searches work, and how real estate title insurance helps you protect your investment in your new property.
- What is a title to a property?
- Is a deed the same thing as a title?
- How do I hold the title to my property?
- What happens during a title search?
- What is a clouded title?
- What is title insurance?
- What claims does title insurance cover?
- Do I need title insurance?
- Who pays for title insurance?
- How much does title insurance cost?
- How do I choose an insurance company?
- How long does it take to clear a title on a house?
What is a title to a property?
Before getting into the details of title searches and title insurance, it’s important to know exactly what a title is. When we talk about who owns the ‘title’ to a property, we are discussing who legally owns the property, and who has the right to use the property. A title can be owned by more than one person – for example, a married couple can own the title to a property together. Holding the title to a property not only gives you the right to use the property and modify it as you wish but gives you the right to transfer the portion you own to others – though you can’t give away more than the portion you own.
Is a deed the same thing as a title?
Many people believe that a deed and a title to a property are the same thing, or do not understand the difference between them. However, there is a legal difference between a deed and a title. As explained above, a title is a legal way of talking about who owns a property, and who can use it. A deed is a physical legal document, required in the US under the Statute of Frauds, which transfers the title from one person (the previous owner or owners) to another (the new owner or owners). Deeds generally need to be filed at a courthouse or other institution, but even if a deed is not filed, this does not affect the fact that you hold the title to the property.
How do I hold the title to my property?
There are a few different ways to hold title to your new property, and you should think carefully before deciding. If you are single, then you will probably choose sole ownership, which means the title is in your name alone. You may hear this referred to as ownership in severalty in legal documents. This is still an option if you are married if your spouse is willing to sign a document stating they have no ownership interest. Another option is to be tenants in common – this is a popular option for investors, as it allows multiple people to hold unequal interests. For example, one person could own a 70% share, while another owns 30%. They are both free to pass on their interest in the property in their will.
Many married couples choose an option called joint tenancy with right of survivorship, which you may also see referred to as tenancy by the entireties. You take title at the same time and each own 50% of the property, and when one partner dies, the survivor owns 100% of the property. This is popular in clear-cut cases, where a married couple intends to pass on ownership to their children. A fourth option is known as community property, but this is only available in some states of the US, namely California, Nevada, Louisiana, Wisconsin, Texas, Arizona, Washington, Idaho and New Mexico. Each spouse owns a 50% share in the property and upon their death, can choose who should receive their share, whether that is their spouse or another person.
The final option is to create a revocable living trust, into which you place your property, along with any other assets you may possess. When you die, these assets will be distributed according to the terms of the trust – you can give your stuff to one person or to many, as you wish. This does not stop you from selling assets during your lifetime and has many advantages, such as increased privacy and the fact that it essentially stops people from contesting your will. Choosing the right way to hold a real estate title is important, and you may want to speak to an expert before purchasing your property, to make sure you fully understand the options and their implications.
What happens during a title search?
Before purchasing any property, you should insist on a title search, to prevent any problems from arising later. In short, a title search ensures that the current owner of the property is legally allowed to sell it. There are many companies that perform title searches, and with a little work, you should be able to find a reputable one in your area. The search might take a couple of weeks to complete, as the title search involves delving into the history of your new property and finding all the paperwork that relates to it. If a problem is found, it can be solved at this earlier stage rather than later, which is a huge advantage.
What is a clouded title?
A clouded title, as the name may suggest, is a title that is not entirely clear in the legal sense, and the lien or claim making it unclear is referred to as a cloud. There are various reasons why a title may be clouded. Typically, they consist of unpaid debts, such as mechanic’s liens, federal or state tax liens, or unpaid property taxes. However, a title can be clouded by something as simple as the street name being misspelt on the deed, or the deed being improperly recorded. A title is usually discovered to be clouded during a title search, although issues do sometimes arise later, and can be fixed by a quit-claim deed with relative ease – another reason why getting a title search is important.
What is title insurance?
Title insurance is continually growing in popularity, with more homeowners choosing to take advantage of the unique protections it provides. In short, it protects your financial investment in your property. If anything goes wrong with the title, having title insurance will prevent you from incurring financial damage due to any litigation or disputes that occur. Typically, a thorough title search will be required before insurance providers agree to provide you with title insurance. Some mortgage providers will require you to have title insurance as a condition of lending money to you, so be aware of that.
What claims does title insurance cover?
Different policies cover different claims, so make sure you know exactly what you’re getting when you purchase your title insurance. Typically, they cover anything that might cause a title to become ‘clouded’, such as past debts or liens, or mistakes in the paperwork. For example, if it was found that the deed was not filed correctly, or if somebody claims that your property was part of their inheritance, the title insurance will protect you financially from the consequences. As a rule, if someone provides you with any communication (whether verbally or in a letter) that disputes your ownership of any part of your property, you should call your title insurance company for help. They will be able to help you with any court proceedings that may result, as well as protecting your money and investment in your property.
Do I need title insurance?
Generally, it is recommended that everyone buying a home gets title insurance, and it is often a condition of getting a mortgage, as banks want to be secure in the knowledge that there won’t be any disputes ahead. It may also be good for your peace of mind and security to know that an insurance company will help to keep your title clear, especially as the cost of insurance is so little when compared to the cost of your new property.
Who pays for title insurance?
It can be confusing to work out exactly who pays for title insurance, and the answer to this question varies by state. In some states, it is customary for the person selling the home to pay, while in others, the person buying the home pays. In some, both will be required to pay some money before the lender will be satisfied. The company who you choose to perform your title search will know more about this, so feel free to ask them.
How much does title insurance cost?
The cost of title insurance varies by state and depends on the cost of your new property. The average cost of title insurance is around $1,000, though you can pay only a few hundred dollars for some policies. Unlike other insurance policies, such as travel insurance or health insurance, you will only pay for title insurance once, and it will apply for as long as you and your heirs own the property. As with other types of insurance, it is possible to ask for quotes from different companies before settling on one.
How do I choose an insurance company?
Firstly, you will want to make sure that your chosen company can handle all aspects of working with real estate titles, from conducting a title search to issuing the insurance – this makes everything easier for you. You should also look for a company that offers a policy that covers everything you want it to, to help you feel secure in your new home. Apart from that, choosing an insurance company depends on your needs and preferences. For example, if you will need to go to the office to sign papers and check on progress regularly, choose a company that is located near your home or work. If you don’t have time for that, choose one that allows you to view and sign the bulk of the documents online.
You might want to choose a company that has been in business for a long time and handled many title transactions, as they might be more aware of the problems that can occur and how to solve them – or you might choose a new firm, it depends entirely on you. The cost of the policies is also important, so look at a few different companies and get quotes from them and decide which you think is most reasonable. You should also ask each company about any additional fees that they might charge – for example, some companies charge extra fees for preparing documents. Don’t be afraid to ask these questions, and to walk away from any company that charges fees you consider to be unreasonable.
If you have family or friends who have recently bought a home, ask them who they used and whether they would recommend their company. Search online for insurance companies in your area and read reviews of them. Do people seem to have a good experience with them, or are the reviews more critical? Use your own best judgement, don’t be afraid to ask questions of any potential title insurance company, and spend some time thinking about your decision. In the end, it is important that you find a company that you are comfortable with, and that you want to work with.
How long does it take to clear a title on a house?
Buying a house can be frustrating as well as exciting, as it can seem like everything takes a long time. The amount of time it takes to clear a title on a house varies, depending on the type of property and how clear-cut the case is. However, typically the process of conducting a title search and procuring title insurance takes around two weeks, though it may be a little longer if the title is clouded – you may have to wait a few more weeks in that case. It really depends on the issue, and whether your title company needs to find and speak to previous owners or track down paperwork that might be hard to find.