When you deal with property, you deal with the title, that oh, so important document proving ownership rights to a piece of land. Like the title to a car, it should contain all the pertinent information about that parcel. But how do you know what’s in the title for a specific property? You do a title search. The title search provides data for the title report. Then you determine whether you should purchase title insurance in case you missed something detrimental to your interests during the title search.
The title search, title report, and title insurance are often compared to a three-legged stool; without one, the remaining two will not stand. Using all three is your best bet against trouble if you are buying real property of any sort.
Each of these items is different, but they come together to form a picture of the status of a piece of land and show you what you may be getting yourself into. Access to a title plant that provides specialized access to property titles in the oil and gas patch is a boon to landmen and E&P companies everywhere.
Title Search and Examination
A title search is a comprehensive search through all the public records associated with a piece of land to determine who actually owns the property and has the rights to sell it.
- A title search looks for liens against the property and judgments against the owner for which the land is collateral.
- It confirms whether the seller has the legal right to sell the property to another.
- It shows if there are unpaid back taxes on the property.
The primary reason for a title search is to find out if there are any issues or potential problems that would make buying or owning the property more than you care to pay or can afford. A title search tells you whether there is a chance you could lose the property if a legal defense is required.
A title search is conducted through records that entirely open to the public; however, that doesn't mean it's easy to find. The title has all the data on a specific parcel of property and the owners of that property back to the first owner. Oil and gas lands often have titles stretching back decades with plenty of opportunities for clouds to creep in.
These records are kept in one of several places, including the county property appraiser's office, the county tax assessor's office, the county court records, the county public records, or surveyor's records. It may depend on the county where the property is located; not all counties treat records the same nor do they call where the records are kept by the same name.
There are several goals to conducting a title search and examination.
- To verify the person who is selling actually owns it.
- To determine if there are liens on the property that have not been discharged.
- To see whether the current owner is up to date on all property taxes.
If you purchase a property with a clouded title, you assume the problems that come with that property, including any back taxes owed. If it turns out the person who sold it to you was not the legal owner, you could lose the property and any money you sunk into it.
You can perform a title search and examination yourself, but you may be better off hiring a title company that does this as part of its business. A title company has access to a title plant and the expertise to glean the right data from the records.
When you use a title company, you receive certain benefits.
- The title company has access to a higher level of data than that found in public records.
- The data is certified and backed by the title plant, so you have a guarantee of quality.
- If the title company misses something, you have legal protection.
Title searches can be extremely time and resource intensive, and they take a certain amount of knowledge to know what you are looking at in the record. Hiring a title company takes that problem off your hands.
A title search and examination is a process. The outcome of that process is a product known as a title report.
A title report is a huge mass of information gleaned from the public records title search that puts together the information you need to make an informed decision about whether to continue with the transaction as well as whether you will need title insurance.
The report includes all the information required to clear a title. In general, title reports include:
- Information about both the property and the owner.
- A legal description of the property.
- Notice of any liens or encumbrances against the title.
- Tax information, including whether back taxes are owed.
- Information about the existence and location of easements.
- A list of covenants, restrictions, conditions, historical rules, and oversight.
What the title report does not do is confirm whether the property can be marked or insured as is.
Did you know around a quarter of all residential real estate transaction uncover problems with the title?
The same issues can occur with property holding oil and gas leases.
Title insurance, a product produced by a title professional like the title report, is meant to cover losses caused by title problems. If you don’t purchase it, you are betting that the title is as clean as the title report makes it out to be. While the title search and report are thorough, sometimes things fall through the cracks. The current owner may not even be aware of a problem.
There are two types of title insurance.
- Owner’s insurance covers the owner.
- Lender’s insurance covers the lender
- Insurance is paid by whoever agrees to do so through the contract, whether it is the buyer or the seller.
The critical point here is that if the lender purchases title insurance but you do not, you are not covered. Only the lender is covered.
Who pays may also have to do with the location of the property. Various states, counties, and mortgage companies write the documents differently. The cost of the insurance depends entirely on the value of the property, typically charging a set amount per $1,000 or similar. You have negotiating room for who pays the insurance premium, which is only required once - at closing.
Why would you need title insurance?
- A divorced ex-spouse may crawl out of the woodwork with claims to the property that you will need to defend against.
- Someone who thinks they have equal rights to the property may make a challenge, such as a sibling who believes a share of the property belongs to him or her.
- It turns out there has been a mix-up of names or downright forgery on the part of the previous owner.
- The purported owner is intent on committing fraud because he or she has no right at all to the property.
Just remember, before you can purchase title insurance, someone needs to perform a title search and examination, then put all that information together into a title report. Without both those “legs” of the stool, you cannot get title insurance.