A Basic Guide To Understanding Chain Of Title
The chain of title offers a complete look into the home’s past. As a home buyer, you can think of the chain of title as a history book of sorts. Every time a home is bought or sold, the transaction is recorded as a critical piece of information that can help resolve any future ownership disputes.
What Is A Title And Why Is It Important?
A title offers legal documentation of ownership of an asset. A few types of assets that involve a title include a home, other real estate property, and vehicles. Personal property such as jewelry may also come with a title.
When you purchase a home, the title isn’t a physical document. Instead, a house title represents your bundle of rights as a homeowner. This bundle boils down to your rights of possession, control, exclusion, enjoyment and disposition.
The title follows the history of the house back to its original owner. The physical document you obtain as a homeowner is a deed, which defines your property and outlines your ownership.
What Is A Chain Of Title In Real Estate?
A chain of title is a series of documents that can be used to back up the current owner's claim. In the case of homeownership, a deed is used to show current ownership. But the documents within the chain of title should follow an unbroken chain of ownership back to the original owner.
The chain of title documents will include information about any encumbrances, foreclosures and title transfers. All of the documents within a chain of title should support each other. Without consistent recording about the house, the chain of title can get messy.
For example, if someone makes a mistake when recording the deed, that can lead to confusion. The party with a properly recorded deed will have the standing to uphold their claim to the property in question.
If someone ever questions your ownership of the property, the chain of title should be able to indisputably back up your right to the property.
Other Uses For A Chain Of Title
A chain of title is not restricted to usage for physical assets. Although less common, chains of title are important for intangible property, including timber or mineral rights, and intellectual property, including music and film.
For above, the chain of title is critical for buyers to ensure the seller truly has the right to sell the assets in question.
How Do I Find The Chain Of Title For My Home?
When you purchase a home, you will hire a title company to conduct a title search of the property. Within this process, they will gather the information required to ensure a title free of any potential ownership questions.
To start the process, the company gathers documents to verify the ownership, uncover any claims on the property and confirm that all taxes and judgments have been satisfied. To verify the ownership of real property during a title search, any mortgages held against the property will be confirmed.
As the homeowner, you’ll receive a confirmation of this information through a title report or abstract of title. If the title is clear, then the sale is able to move forward. If the title isn’t clean, then the homebuyer can’t move forward until outstanding ownership questions are resolved.
How Do Liens Affect The Chain Of Title?
Different types of liens affect the chain of title in different ways.
A mortgage lien is a common type of lien. After all, many homeowners have an outstanding mortgage when they decide to sell their home. If a home is encumbered with a mortgage lien, that just means that the seller must agree to repay the remaining mortgage amount from the proceeds of the sale. This falls into the voluntary lien category because you agree to these terms set by lenders when you take out a mortgage.
There are also involuntary liens. Tax liens are common. If the owner hasn’t paid the property taxes, then the government can put a lien on the property for the outstanding amount. Other types of liens include judgment liens for a contractor bill that the owner didn’t pay or homeowners association liens if the owner hadn’t paid their dues.
Liens are attached to a property. If there is a lien on the home, the buyer or seller must agree to pay the liens in order for the sale to move forward.
Is My Chain Of Title Legitimate?
A reputable title company will handle all of the chain of title research for you. If they find any information that casts doubts on the property’s ownership, the professionals will let you know. Depending on the issues that come up, you may decide to pay the liens or walk away from the sale entirely.
The good news is that you can buy title insurance to protect you from anything that your title company missed. Title insurance can cover the financial costs and court fees that you might incur if someone questions your ownership claim of the property.
The Bottom Line: A Proper Chain Of Title Can Help Prevent Headaches
Although it’s good to have a basic understanding of a chain of title, the bottom line is that a clear title is the key to an undisputable ownership claim on your new home. Luckily, professionals from a title company will be able to check if there’s a clear title on your new home.
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