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 or a judgment lien, either of which could block the sale until it's paid in full.
A property title search result shows anything that may "cloud title" to the property, such as mortgages and other liens, easements and zoning restrictions. If you're buying a home, the title search will show you what needs to be resolved or paid off before you can close, and it will also show you the things you can and can't do with your new house.
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, if the title agent misses a property tax lien and you become liable to pay it off before you can close on the property, your title insurance will cover it for you. 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 Property 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 simple" is the highest type of ownership interest a person can have; if the report says "leasehold estate" or any other type of ownership interest other than fee simple, contact your title agent, because it may mean the seller doesn't have the right to sell the property. 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 and make sure it comports with your understanding of the property lines.
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; the taxes that have not yet been paid will be assessed pro rata between you and the seller, depending on whether you're buying in the middle of a tax period.
- 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. For example, the seller may have entered into a written and recorded agreement with his neighbor to allow him to use the driveway. 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, judgment liens or "lis pendens," which is a notice of impending court action concerning the property.
Your title agent and your realtor can explain which of these items are the buyer's responsibility and which are the seller's.
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.