Being a first-time homebuyer is both exciting and stressful. You need to learn a lot of things quickly. Skipping essential steps in the process can hurt you both personally and financially.
Because there is so much involved in buying a home, some first-time buyers are inclined to cut corners. We frequently get asked about a property title and owner search. People want to know if it’s necessary to do a title search when they’re under contract.
The short answer is yes, but let’s talk about why. A property title and owner search can save you a lot of trouble as you move through the process of buying your home.
What is a Property Title and Owner Search?
A property title and owner search is a public records search designed to help you determine whether the title of the property you want to buy is free and clear.
Public records include:
- Property titles
- Tax liens
- Mechanics’ liens
- Property descriptions
- Construction permits
Basically, you’ll want to search anything that might affect your ability to buy the property. The title search can be done before or after you enter into a contract to buy the property. It absolutely must be completed before you close on the property in question.
What Can You Learn by Doing a Title and Owner Search?
If you’ve never done a title search before, you might be wondering what kinds of things you can learn from one. Many things may impact your ability to buy a property. Here are some of the most common:
- Outstanding loans are a common problem, especially if you’re buying a foreclosed home. It’s common for lenders to sell their debts to other lenders. A title search will reveal any lender that has filed a UCC-1 financing statement indicating they have a financial interest in the property.
- Tax liens are another potential problem. If the home’s current owner has not paid their property taxes or income taxes, the taxing agency may file a lien on the property. In most cases, the lien will need to be satisfied for the sale to go through.
- Another type of lien that may show up during a title and owner search is a mechanic’s lien. Mechanic’s liens are typically filed by contractors and construction companies as a way of protecting themselves against non-payment. If a client doesn’t pay a bill, they can be sure they’ll be notified (and paid) when the property is sold.
- You’ll want to check the legal description of the property you’re buying against its current condition. If the current owner has made illegal renovations or expansions, it can affect the property’s valuation and your mortgage application.
- A title and owner search will also allow you to compare the home address and description to the deed. It’s not common, but sometimes unscrupulous owners will show one home and provide the deed to another, less valuable property.
The bottom line here is that conducting a thorough title and owner search protects both you and your lender against fraud and unexpected expenses.
What Can Happen if You Don’t Do a Title and Owner Search?
Now, let’s talk about what can happen if you don’t do a title and owner search while you’re under contract. It might not make a difference in some cases, but in others it can spell huge trouble for you down the line.
One example has to do with a lien. Imagine you bought a property that had an outstanding mechanic’s lien for $5,000. If you bought the home without doing a search, you might be on the hook for the $5,000 owned to the contractor who filed it.
The same is true of outstanding property taxes. Once you own the property, those taxes become your responsibility. It’s essential to do a search and require the current owner to satisfy all liens prior to the closing.
It is worth noting that not all liens mean the current owner hasn’t paid their debts. Sometimes, contractors file liens and then forget to terminate them when they’ve been paid. You can’t assume anything, but it’s important to ask.
Who Can Do a Title and Owner Search?
When it comes to conducting a title and owner search, you have two basic options:
- Hire an independent property title search company to do the search on your behalf; or
- Do the search on your own.
Most municipalities and states make public records available online. The search may only take you a few hours. However, we recommend hiring a professional unless you have experience doing title searches. Missing anything might be costly.
Doing a property title and owner search will ensure the property you’re buying is yours to purchase, free and clear of any encumbrances. It’s an additional expense – but one that’s worthwhile for the peace of mind and protection it offers.
At Addition Financial, we offer a range of mortgage options for homebuyers. Click here to learn more.