What Is A Title Examination?

When you purchase real estate, the title transfer for the property is what legally completes the sale. However, sometimes the seller does not have a clear title to transfer and there are debts or other limitations attached to the title that the buyer does not want to inherit. A title examination is one of the most important steps of the home buying process because it reduces the risk of title issues.

A title examination is a process by which the property is deemed suitable for sale. A thorough review of the chain of title will identify issues or ensure the seller has a marketable title to sell. Once the property is under contract, a title insurance company or agent will search public records for competing claims of ownership, debts associated with the property, or other issues that would cloud the title and put the buyer at risk.

Evaluating restrictions, easements, and encroachments

Just like a buyer is entitled to an inspection to know if there are mold, termites, or other issues with the property itself, so is the buyer entitled to know about any title issues that could affect his ability to use the property. Encumbrances like mortgages, outstanding judgments, or other liens attached to the property should be canceled or satisfied before closing. 

An easement allows another party to use your property for a specific purpose. There can be an easement on the property to allow utility work if the main line crosses your property or it could be more restrictive and limit the property’s use. Easements are not always problematic but should be disclosed in case the nature of the easement limits the property use and impedes the buyer from using the purchased property as intended.

Because Florida law does not require adjoining landowners to use fences for land division, encroachments are not unusual. An encroachment is typically a physical structure constructed on a neighbor’s property that crosses the property line onto your property. Encroachments, if minor, will not create major title issues. However, if the property encroachment is significant and permanent, it could render the title unmarketable if it cannot be resolved.

Must a mortgage be satisfied before closing?

A title search will reveal information about past mortgages, including when the mortgage was taken, from whom, and for how much. Generally, mortgages should be canceled or satisfied before the seller transfers title to the buyer. However, If the property is a foreclosure, the title will be clear for the buyer despite a record of the outstanding mortgage. 

What if there are concerns about my title before closing?

Title insurance is typically a requirement of most banks that finance mortgages for homebuyers. If there is a title issue, such as a lien, defect, or encumbrance that clouds the title to the property, it can make it difficult if not impossible for the buyer to obtain the necessary title insurance. Therefore, title issues typically must be resolved before closing for a complete sale. 

If you are in the market to buy real estate, consult an attorney before signing any closing documents. To protect your rights and your new property, it is vital that a knowledgeable title professional review the chain of title to ensure you receive a clear title.