When we refer to “title” in a real estate transaction, it refers to the process in which the legalities around a property are examined to make sure the seller has complete ownership of a property and the right to sell it, the legal description is compared against the property for sale, and any other entities who may have legal and continuing access to the property are identified.
Here are just a few things that are examined during the “title review” process:
Verify seller has the right to sell the property. Oftentimes there are other entities who may be listed as legal owners. These could include divorced spouses, heirs, or trusts. These need to be cleared before the property and the actual seller identified before the property can change hands.
Identify any lien holders. Sometimes creditors put “liens” on properties to make sure debts are paid before the property can change hands. These can include creditors for property tax, some utilities, contractors, and even the IRS. In some cases, these debts can be paid out of closing dollars, but often they need to be taken care of by the seller before closing.
Identify easements which provide ongoing access. The buyer needs to be informed of any existing easements and ongoing access that goes along with the property. For example, some utilities such as power companies, gas companies, pipelines, driveways, and shared spaces must be identified so the buyer knows exactly what they are purchasing and which areas must remain clear of fences and outbuildings so those who need ongoing access can obtain it.
Legal description. As a buyer you want to make sure that you are purchasing the right property!
Title insurance is also provided by the title company and protect the buyer and the lender (if applicable) against any defects in the title. For example, if the buyer was not made aware of the power companies’ need to a keep a 500 square foot section of their property clear for utility access which rendered that percentage useless for development, depending on the circumstances, title insurance would provide relief to the buyer for that loss of use if that was not identified in the title report.
You will be provided a copy of your title report after the contract has been accepted by both parties and before the property changes hands. Buyers are usually presented with the “clean” report which already has as many items cleaned up as possible. Sellers may be called upon to clean up any of the discrepancies such as ownership and lien issues.