Buying or selling a home, whether you're an experienced investor or not, can be a tedious and complicated process. From dealing with brokers, agents, appraisers, inspectors, and lenders there is quite a bit of industry jargon and documentation. Somewhere in this lengthy process, you'll come across the need for 'title', and though it may seem like just another piece of the puzzle, it can represent the most important aspect of your real estate investment.
Educating yourself on how title works in practicality, and how it impacts your property could be instrumental in your success moving forward.
What is Title?
Broadly speaking, title is documentation that proves the legal right to ownership of a piece of property. This can be anything ranging from a house or car, all the way to intellectual property, alternative assets, copyrights, or trademarks. For real estate-specific purposes, we're going to focus on real property titles or documentation that convey ownership of a tangible, long-standing asset.
It's important to differentiate 'title' from 'deed', which is legal documentation denoting the transfer of ownership from buyer to seller. If this is all too confusing, that’s okay. Just know that both are components of a successful real estate transaction.
Title, specifically, demonstrates a historical chain of custody extending through a property's history. This detailed transactional ledger assures current and future buyers that the property they are purchasing is free from any claims, liens, debts, or other unresolved issues that would be conferred to them on acquisition. This record extends back upwards of 60 years, or the life of the property. A property free from any of these obligations is said to have 'clear title'.
The act of validating a clear title is performed by a title company, which will have experience researching the history of a property as well as access to extensive documentation from other title companies and government archives. Their verification should be your number one priority before you close on a property. But the initial validation is only a component of what the title company offers. They will also be able to provide 'title insurance' that protects you from title defects.
This insurance is typically paid for by the seller (as is the title work generally) and insures you against mistakes that the company may make. This can happen regardless of the quality or reputation of the title company. Certain properties simply have a complex history that lacks sound documentation. A small error at the registrar 50 years ago could come back to bite you in the present, and as you will see the list of possible title defects is extensive.