Performing a title search is a crucial step in the purchase process for any type of real estate. A title search involves examining public records to confirm and verify the legal ownership of a property and to identify any potential issues or clouds on the title. The main goal of a title search is to ensure that the property has a clear and marketable title, meaning that the seller has the legal right to sell the property without outstanding claims or encumbrances that could affect the buyer’s right to own the property. A thorough title search can reveal potential red flags that might pose issues down the line. Let’s examine 7 red flags to watch out for in a title search.
1. Outstanding liens
An outstanding lien on a property is any legal claim or interest that a third party has on the property as a result of the property owner’s unpaid debts or obligations. These liens are typically financial encumbrances on the property by creditors, government agencies or other entities as a way to secure the repayment of debts. These include unpaid taxes, mortgages or contractor liens. Outstanding liens typically lead to complications when transferring ownership because the new owner could become responsible for satisfying the old debt. If an outstanding lien is discovered during a title search, it is crucial to resolve it in order to avoid complications with the transaction.
2. Encumbrances
An encumbrance is any burden, claim or restriction on a property that affects its use or transfer of ownership. Encumbrances can include liens, easements or restrictions from previous agreements or covenants. Easements are the most common encumbrances, which grant someone else the right to use the property for a specific purpose. A thorough title search will help potential buyers and lenders fully understand any limitations or obligations that could affect the property.
3. Ownership disputes
Ownership disputes are a result of a disagreement or uncertainty regarding who rightfully owns the property. This can result in multiple parties claiming ownership or disputing the validity of the property title. Common ownership disputes include cases of family inheritance, divorce, unclear property boundaries or unresolved issues from past transactions. Resolving ownership disputes often requires legal intervention, which can impact the title and the buyer’s ability to obtain clean ownership.
4. Fraudulent transfers
A fraudulent transfer refers to any deceitful activity in which someone attempts to illegally transfer property ownership without the actual owner’s knowledge or consent. This includes forging signatures on deeds and creating fake documents in an attempt to deceptively convey property rights. Ensuring that all previous transfers and signatures are legitimate and resolving any potential issues is crucial to a successful purchase.
5. Bankruptcy proceedings
If a property’s current or previous owner has filed for bankruptcy, it could negatively impact the title. Bankruptcy proceedings involve the sale of assets, including real estate, to satisfy creditors. If a title search uncovers a bankruptcy proceeding in the property history, extra care should be taken to ensure there are no legal considerations or restrictions that need addressed before purchasing the property.
6. Unresolved legal issues
Any ongoing legal issues related to the property, such as pending lawsuits or unresolved court judgments, should be flagged during the title search. Even if these issues don’t affect the ability to sell the property, they could affect the property’s marketability. These issues may arise from disputes between previous property owners, boundary disputes or legal claims that aren’t fully adjudicated.
7. Inaccurate public records
Inaccurate public records happen in real estate, resulting in errors, mistakes, or misinformation in official documents. This can lead to discrepancies in property descriptions, boundaries or ownership. Deeds, mortgages and any other legal documents related to a property are all considered public records. It’s crucial to cross-check the information uncovered by a title search and rectify any inaccuracies before handing over any money.
If you’re looking to purchase property, having a reputable title company perform a title search is essential in identifying and addressing these red flags. A complete and thorough title search offers transparency and confidence to all parties involved in a real estate transaction. If you would like to talk with a title professional who can ensure a smooth and secure real estate purchase, please reach out to speak with one of our experts at Landmark Title.