Buying a property is a significant commitment of time and financial resources. That’s why a property title search is important.
Some investors allot a considerable percentage of their savings into it. If you do it right, though, you can profit significantly from such an investment.
However, this undertaking comes with plenty of risks and uncertainties. Thus, it is necessary to do your due diligence and make wise choices to avoid common real estate investing pitfalls.
What is a Title Search?
One of the first steps in real estate investment is doing a title search. It is defined as “an examination of public records to determine and confirm a property’s legal ownership and find out what claims or liens are on the property.”
A title search helps provide a prospective buyer insight into any covert liens, encumbrances, deeds, loans, tax dues, or restrictions attached to the property. It can be conducted by a title company, an attorney, or the buyer himself.
Identifying the Property and Locating the Deeds
A prudent buyer always pinpoints the property and its street address in the very initial stage. Afterward, the most crucial step is to identify the tax assessor’s office in the county or city wherein the property is located. The local tax assessor’s office can be found online.
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Check the Tax Assessor’s Records
Upon determining the local tax assessor, visit their website or call the office to check the availability of the property tax records. The information from this step will help in the search for the property deed.
Search for the Property Deed Online
With the digital age upon us, many states can now provide access to property deeds online. Some of them offer it for free, while some charge a small fee.
The first deed you would want to locate is the most recent one. Make sure the name of the property owner in the deed matches that of the prospective seller. After that, gather all of the available deeds from the past 50 to 70 years in order to establish the chain of title.
Visit the Office That Records Deeds
In the case that the area where the property is located does not have an online deed search system, you would have to look for the deeds and obtain the records manually. These records hold the property’s historical information, including its tax history. Each deed you come across will lead you to the previous deeds.
Create a Chain of Title
Once copies of all the deeds have been collected, arrange them from the most recent one to the oldest. This would help determine that ownership of the property was passed properly. The chain of title will end after the original owner of the property has been ascertained. Information before then may have to be obtained from courthouse records.
If there are inconsistencies in the chain of title, it is best to consult a real estate attorney to weigh the risks involved in the purchase of the property.
Checking for Loans, Judgments, Liens, or Outstanding Taxes
This is the second and most important step to make sure the property is free of these financial restrictions or liabilities.
Conduct Tax Research
The information from the tax assessor’s records can also show whether or not the property has outstanding taxes or special assessments. Overdue or unpaid taxes can create a lien against the property.
Check if there is a Judgment Lien Against the Property
There are some cases wherein a property is under a judgment lien. This means that a court has issued a ruling that allows a creditor to hold possession of the property if the owner fails to fulfill their obligations.
Set Up a Discussion for Any Financial Restrictions with a Real Estate Attorney
Suppose you discover financial restrictions or liabilities on a property. In that case, it is recommended to consult a real estate attorney to minimize the risks that come with the purchase of the land.
Furthermore, they can help defend you against legal claims on the title to the property and hold the seller accountable for any damages due to his or her negligence.
Hiring a Title Search Company
Conducting a title search can be an arduous task for prospective buyers. It is usually better to acquire the services of experts to make the process more efficient and the investment more secure.
Choose a Title Search Company with Which You Are Comfortable
Some of the considerations you must make in looking for a title search company include its years of experience in the industry and affordability of rates. You should also feel comfortable working with the company you plan on hiring.
Purchasing the Title Insurance
Understandably, some may have concerns about purchasing title insurance, thinking of it as an unnecessary cost. However, this type of insurance can help protect property buyers against claims of ownership by other parties, flawed records, judgments against the property, and more. In any commercial real estate transaction, particularly when there is a lender involved, title insurance will likely be required.
Why a Clear Title Matters
A clear title is essential since it protects the buyer from all types of liabilities. First, it ensures that no other party owns or has legal claim to the property. Secondly, it reduces the chances of fraud. And finally, it helps determine there are no liens or other judgments placed against the property. Each of these points are critical elements in making sure the purchase of the land or property is a sound financial decision.
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Before buying commercial real estate, it is crucial to make sure that the title is clear and free from defects. Following the steps discussed above can help prospective buyers or investors ensure the legality and financial viability of their purchase.
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Jeri, I like your advice about hiring a title search company I feel comfortable working with. My husband and I are thinking of purchasing a commercial property downtown. Before we close the deal, we’ll first hire a title search company to be wise investors. Thanks!
Hi Levi – Glad to hear the article helped and we wish you much success with your purchase! – Jeri