I’ve mentioned a Title Search in several posts about securing a mortgage and buying a house. This is a very important document. It substantiates the owner’s right to sell the property—that there are no other ownership claims or liens against it. This verification is required by the buyer’s lending institution. And, if as a buyer you are opting for owner financing, you will want the property to have a clear title (or understand the possible consequences of not having one).
If you are planning to apply for a mortgage loan from a traditional lender a title search ultimately will be done for a fee by professionals in the title abstract field. A lender is not likely to accept your own research. However, should you find something questionable (something that could lead the lender to decline the loan) doing a search of your own as a preliminary to applying for that loan could save you the application fee. And, again, if you will be buying directly from the owner, you will want to know that your future right to own and sell the property will not be challenged by something from the past.
By the way, many people (even professionals in the field) will use the terms “title abstract” and “title search” almost interchangeably. There is a difference. A title abstract is basically a chronological listing of every recorded legal document associated with a property—some of them being fairly insignificant to a current sale e.g., the quit claim of a house from one spouse to the other; this would only be of interest if it resulted from or in a title problem. A title search on the other hand is a thorough search of records specifically to find problems (or their absence). The result is a report also called a Title Search. It may go back quite a few decades. To put it in perspective: Consider the claims of Native Americans on parcels of land in various parts of the United States
The report resulting from the title search will include a legal description of the property, i.e., physical address, subdivision, lot number, etc. It will also list tax information and any encumbrances. —Encumbrances are a multitude of issues, including:
Liens—These are claims against a property to secure a financial obligation or debt owed by the owner. There are several types of liens. A mechanic’s lien denotes an unpaid bill for work (or materials involved) done on the house or property, e.g., painting or roofing. Unpaid taxes commonly result in a lien. A lien can be put in place against the property as part of a judgment against the owner. (The cause for the judgment need not even be related to real estate.) Here’s a conundrum: Sometimes a property owner can be forced to sell in order to satisfy lien-holders. It is, however, difficult to obtain new financing when liens are in place. — In situations like this buyer can benefit greatly from having a legal advisor that specializes in real estate.
Covenants—These are deed restrictions. They govern how a property may be used, as well as what structures may be present. Especially in new subdivisions, developers, builders, and homeowners associations establish covenants to maintain the quality and value of the property. A covenant could limit on-street parking, the number and type of trees in each yard, the number and style of storage or utility sheds on the property, even the type and placement of children’s play structures—the list can be virtually endless. Here’s a historical note: In the past, owners could place restrictions on deeds that would prohibit certain people from ever buying that specific property. In the mid-1900s the US Supreme Court ruled that if based on race these restrictions were unenforceable. Now, tight strictures (and their enforcement) tend to limit buyer pools to those that appreciate them. (And to those who can afford to live with them.)
Licenses—These are privileges granted by the property owner that allow someone a particular use of the property. For example, years ago I bought a house adjacent to a park. On move-in-day I was busy unpacking when my kitchen door opened and in trooped five kids. They were on the way to my bathroom when they realized they didn’t know me. (We were all shocked!) Anyway, it seems there was a general agreement in the neighborhood that the children were free to use the bathroom in any house next to the park as long as the back door was unlocked. I can tell you that was one license I quickly suspended (until I became acquainted with their parents). This particular arrangement (this license) had been established by verbal agreement, but a license can also be granted in writing. Either way, licenses can be withdrawn at the property owner’s discretion. —Because of their flexible and informal nature, a researcher may not find the licenses attendant to a property when a title search is done. But once in a while one is recorded (this does not make it any more permanent), so I’ve included the topic in this discussion.
Easements: These are permanent privileges— specific usage rights that transfer with a change of user. The owner retains title to the property, but the party to whom the easement is granted has a real interest in it and to deny usage (for the stated purpose) would make the owner liable for litigation. Understanding the intent of the easement is important—and so is the wording of the document. Easements are recorded documents. Types of easements include:
Easement in Gross: Utility companies commonly hold this type of easement. It allows workmen and equipment onto property; a clause will allow them to place structures needed to maintain (or establish) service. The rights granted can be sold or transferred to another like company when the service provider changes. These easements are usually established on every parcel of land in an area during the development stage. They are the reason the wall of a house (or sometimes, even a fence) cannot be built directly on a property line.
Easement Appurtenant: This occurs when the owner of a property has secured some right of use to an adjacent property with a different owner. A common form of this easement is the shared driveway or the one that must cross a neighboring property in order to access the public road. This last example is further defined as an easement by necessity. The owner seeking the easement must be able to show in court that: (1) there is no way to access the public road from his property, (2) the property on which he wants easement to place the driveway does have access to the public road and (3) his property and the one he wishes to cross, share are adjacent.
Other types of easements may be encountered. One of interest is the Negative Easement: This type of easement prevents a property owner from doing something that would adversely affect an adjacent property—like obstructing their view of the ocean with a 20-ft. fence. Basically, easements are established for fairness, but prospective buyers and financers often consider them to be a problem.
Encroachments: An encroachment is the invasive use of a property from one adjacent to it. Usually it is unintentional. Probably, the most common encroachment is the fence that is set a few inches (or maybe, more) on the wrong side of a property line. A more serious encroachment would be part of a permanent structure extending a considerable distance into the neighboring property. Encroachments are usually discovered when a survey of the offered property is done at the request of the prospective buyer (or his lender). Owner resolutions to an encroachment vary: An owner may be recompensed for damages; the offending part of the structure may have to be removed, etc. Legal assistance is frequently required. — The amount of time an encroachment has been in place (unrecognized or ignored by the current or previous owners) is a major concern. The number of years will vary by state, but encroachments that are not confronted and resolved in a timely way become permanent encroachments—prescriptive easements—by law. This becomes an inherent problem in that prescriptive easements might not be documented, apparent only after a survey is done (or by talking to the neighbors). When discovered, they are viewed as problematic in the transfer of property titles, but is should be noted that (sometimes) the problem is rooted more in emotions than practicality. Before declining an offered property, a prospective buyer (especially one interested in taking advantage of owner financing) should always consider how detrimental to the use (or appearance) of the property the encroachment really is. Some mortgage providers will also take this into consideration.
As with any other aspect involved with the buying of a house and obtaining a mortgage (or other financing) there are many things to be considered when interpreting the ramifications of the findings in the report. A buyer is wise to educate himself in these matters. In my next post I plan to give information on how to do a title search.
