THE HOME BUYING & SELLING PROCESS - TITLE POLICY AND SURVEY

One of the more complicated steps in the home buying and selling transaction is the title policy. Title in real estate means the right to ownership of land. It refers to legal rights to the property (also called the bundle of rights) that include possession, control, exclusion, enjoyment, etc.

Your title to land is your legal right to claim, recover, and retain ownership. It is a reference to ownership and not an actual document. A property deed is a legal document that records the transfer or conveyance of property from the seller to you, but it is not title.

When you buy property, you will want to make sure that you end up with the full bundle of rights to that property for as long as you own it. This protects you from the possibility of someone else claiming the property is theirs. That could end up being a costly legal battle.

One of the first actions a title company will perform after receiving an executed sales contract from your agent is a title search. The search will look back in history at all previous ownership of the property, identify who legally owns it, and determine if there are any clouds on title. Clouds are liens, unpaid mortgages or taxes, encroachments, or other potential defects that could affect the transfer of the property and jeopardize your rights.

Your title company will also require a survey of the property. An existing survey can be used under certain conditions and will require an affidavit from the seller that there are no changes to the property shown on the survey. Otherwise, a new survey will be required.

An easement is a third party's right to property. Most easements on property are defined by physical boundaries. Easement boundaries must be included on the survey. Part of the title search will review easement boundaries to confirm accurate representation.

The results of the title search will include a document called an abstract of title or property abstract. This is a summary of the property’s history known as a chain of title. The abstract is then reviewed by the title company’s attorney to determine risk in issuing an insurance title policy covering any defects.

Your title company will prepare a title commitment document describing your title insurance policy coverage. The policy will have standard exceptions to coverage like deed restrictions, your mortgage lien, utility easements, etc. You will want to review the title commitment carefully to know what is covered and it is good advice to have your attorney review it also.

Since the seller is claiming ownership of the property, he or she will have to furnish the title policy through the title company. Payment responsibility for this insurance policy is negotiable. You will be given an opportunity to file an objection to any discovered defects, exceptions, or encumbrances disclosed on the survey or title commitment.

Your lender will likely require a separate lender title insurance policy. This policy is to cover the lender for any damages coming from a claim on title. Since your lender will have a lien on the property, they will want assurance that there are no title problems in the event of a foreclosure. The owner’s (your) title policy can be paid for by either the seller or you, but you will always have to pay for the lender’s title policy since it is your mortgage.

The survey and title policy go hand-in-hand during the home buying and selling transaction. While surveys can be physically verified, title and historical ownership claims are more abstract and require a bit more investigative work. Both are critical to a successful transaction.