One of the many details we’ll need to take care of before you close is a title search of the property you’re buying and your purchase of title insurance.
Because most people come in contact with title searches and insurance only when they buy or sell a home, many buyers and sellers are unclear about what it is or why they’d ever need it. Here are the basics:
What is a title?
A title shows proof of legal ownership. In this case, that is ownership of real property.
What is a title search?
A title search is a search of the public records related to a given property. This is usually performed by a title company or attorney. The search may include examination of deeds, wills, tax documents, liens, judgments or any other legal transaction involving the property.
The purpose of the search is to find any outstanding financial obligations or “title defects” against the property that have to be satisfied before the property can be sold. That is, does any other party have financial interest in the home?
For example, maybe the seller has a lien against the home to secure a loan. That lien would show up in the title search as something that has to be satisfied before the property can change hands. Or maybe the seller bought the home as an investment property with a relative. Now that he’s selling, the relative has to sign off on the sale of the home as well.
Most title defects are found during the search and resolved. It could be something as simple as a late charge owed on taxes that were paid after the deadline. But it could be as complicated as another person having a claim of ownership.
At the least, any outstanding obligation is satisfied and the sale progresses. At the most, an unexpected defect can stop a home sale.
What is title insurance?
Title insurance comes into play when the title defect is not found during the title search.
Go back to the example of relatives buying an investment property. If the home is sold without the relative signing off on the sale, she could come back later and make a claim of ownership against the property. Title insurance protects you and your lender against financial loss if she does.
What are the different kinds of title insurance?
After the sale is closed, an owner’s policy protects you, the homeowner, against financial loss because of a title defect. A lender’s policy protects your lender’s interest in the case that the mortgage is deemed invalid (because the seller didn’t have a free and clear title to sell the property) or doesn’t have priority over other interests against the property.
Who pays for the title search and title insurance?
In Virginia, the seller typically pays for the title search, and the buyer pays the premium for the title insurance. Both fees are paid at closing.