Once you've opened escrow on a house purchase, the title company has a few days to investigate the property's title. The research typically includes an examination of maps, surveys, past ownership, mortgages, easements, zoning, rights of way, taxation values and other things that might impede your full use of the property. For example, the title company might turn up a contractor's lien which could block the sale until it's paid in full. If you're wondering how to read a title search, it's best to break it down into sections.
Title Insurance Commitment
Most title reports are not simply title reports – they come bound up with an offer to issue title insurance. For a one-time fee, this policy pays out if there are unexpected title defects and you end up out of pocket because of those defects. For example, the title agent misses a property tax lien and you become liable to pay it off. Generally, you'll find the title commitment at the very beginning of the report, labeled Commitment for Title Insurance, or something similar. All you need to do here is check that the personal details are correct. These include your name and the names of any co-purchasers, the name of your bank and the purchase price.
Proof of Ownership
It sounds really obvious, but the next thing you need to check is the name of the owner of record. This should be the same as the seller's name. If the names don't match, contact your escrow or title officer. Next, the report will list the nature of the owner's interest in the property. Fee or Fee Simple is the highest type of ownership interest a person can have; if the report says "leasehold estate" and you're not expecting a leasehold, tell your escrow officer. Finally in this section, make sure you're buying what you think you're buying. Read the legal description of the property and understand where your boundaries are. Look for a plat map or county assessor's map indicating the location of the property.
Exceptions and Restrictions
The exceptions section is the meat of the report. Here, you'll find all the defects, encumbrances and liabilities that will become your problem unless you get them removed before closing the escrow. The insurance company generally will not issue a title policy until these items are removed or accounted for. Most properties have at least one item in this section. Some common exceptions include:
- Property taxes. The report lists the amount of taxes affecting the property and whether they've been paid. The seller should settle past-due accounts during escrow.
- Easements. These are rights that another person has in the property, such as a neighbor's right of way or a utility company's right to access your property to maintain utility equipment. You're generally stuck with easements, but they may warrant a price negotiation if the easement affects the property's value.
- Mortgages. Any loans listed against the property will have to be paid off in order to secure a release of the mortgage and issue a title policy. Typically, the seller's mortgage is paid off through escrow at closing.
- Encumbrances. This catch-all term covers other liabilities that you can inherit at closing such as contractors' liens, deeds, trusts, court judgments or "lis pendens," a notice of impending court action concerning the property.
Act Quickly in Case of Problems
It's critical that you read the title report carefully and speak to your title or escrow officer if there's something you do not understand. Most purchase agreements let you cancel the contract if there's something seriously wrong with the title, such as an unexpected right-of-way over your land. For less serious defects, such as a contractor's lien with a couple of hundred dollars left to pay, you might negotiate with the seller to pay these items off during escrow. Be sure to read the report as soon as you get it. Typically you only have a short window – 10 days or so – to cancel the contract or negotiate the terms of the transaction.