If you’re selling real estate, you can only convey what you actually own. To break it down simpler, a seller can’t ever transfer an interest in real estate that the seller does not have. So before you buy a parcel of real estate, you have to understand what interest the seller owns. Also, if the seller is even able to convey ownership to the property. You would want to know any encumbrances that might limit the use of the property. Also, any liens that should be paid prior to settlement. Recording the documents in the county where its located, makes information on the title public. This gives you enough information to determine the title’s condition.
Anyone can review the information recorded at the county. But during the real estate transaction , a professional performs the research. This professional can be an attorney, abstractor, or even a title company.
Adding to that, state laws require that anyone with interests in real estate, should file a public record anything that affects their interest. At the end of the day, public records should show the condition of a title. This will enable us to rely on a search.
Let’s dive a little more into this..
Public Records and Recording
Let’s explain what it means to record a public document. When you record, its the process of placing documents in the public record. So, under each state’s law, you got to record all written instruments affecting any estate, right, title, or interest. This gives public notice of all the different interests of any party in the title to a parcel of real estate.
Everything has to follow the law, even recording. So, the instrument has to be done according to the local recording statutes.
Notice
There’s a doctrine in the English common called “caveat emptor.” It literally means “let the buyer beware.” So, in essence the courts will charge a prospective buyer with the responsibility of inspecting the property. Even searching the public records so you can learn of the possible interests of the other parties. This is actually called constructive notice. Even if you don’t do it, is not even good enough for a defense in court. Its located in the public records, so you had access to it, is really the concept.
Constructive notice is different then actual notice though. This is what the person actually knows. So once you inspect a property or search the public records, you now have actual notice. So once you have actual notice and it can be proven, you can’t rely on the lack of constructive notice.
Foreign Language Documents and Priorities
Here’s an interesting point, if any deed is written in a foreign language, it doesn’t count for constructive notice. It’s valid to use in a real estate transaction though. Recorded documents have to be in English. For it to meet requirements, a consulate from the country has to provide an official translation.
The rights are on a first come first serve basis, called priority. Its theorder of rights or position in time. Many complicated situations can actually come from this. Its like if a purchaser receives a deed and takes possession, but doesn’t record the deed. Then at a later date, another purchaser gets the deed from the original owner and records. The first person actually has superior rights then the later purchaser. These situations have to settled by a lawyer.
Chain of Title
So from the starting point of the title ownership until the present owner is something called the chain of title. It’s a record of ownership of a property over time. If there is a gap in ownership, its known as a cloud on title.
Let’s breakdown the evidence of title next..
Evidence of Title
Everyone who’s buying real estate wants to know they’re getting a marketable title. This means that its free from significant defects like undisclosed liens and encumbrances. If a title is unmarketable it doesn’t mean it can’t be transferred. It just means certain defects can limit or restrict future transfers. Learn how to acquire and transfer title here..
When you got evidence of title, it just means you got documentary proof that the seller is the owner and has good title to the property. Only four forms of title evidence. These are (1) abstract of title and lawyer’s opinion, (2) title insurance policy, (3) Torrens certificate, and (4) certificate of title.
Abstract of Title and Lawyer’s Opinion
So an abstract is typically something, brief. That’s exactly what an abstract of title is. Its a brief history of the instruments that affect title that appear in the county record.
Title Insurance
A title insurance policy reimburses you against any loss that came as a result of defects in the title not counting the exemptions listed in the policy. The policy will defend against any lawsuit attacking the title if any defects are the cause. Now this doesn’t cover any liens or defects found when you’re examining title. Only undiscovered ones.
Owner’s and Lender’s Title Insurance
Most common types of title insurance are the owner’s and lender’s policies. For the lender, the lender’s title insurance policy insures a mortgage lender that it has valid first lien against the property. This policy only covers the lender’s interest not any owner’s. That’s why the owner has to purchase their own which benefits their heirs as well.
There is a difference between the both of them. The owner’s policy is valid for the full amount of the policy as long as the insured or the insured’s heirs have an interest in the property. The lender’s, however, can be transferred if the loan is sold and decreases as the principal decreases too. The owner’s policy actually ends when it is sold to another party.
American Land Title Association
The American Land Title Association (ALTA), is an association of 2,000 land title companies. They’re scattered throughout the nation, organized to maintain professional standards and ethics.
Certificate of Title
In some localities, a certificate of title prepared by an attorney is used in place of an abstract. The attorney will go through the public records. Then issue a certificate of title that express’s the attorney’s opinion of validity of the title.
Title and Escrow Agents. Many states don’t require that an attorney prepare the title search and conduct real estate settlements, So, title and escrow agents get the abstract of title, arranges for title insurance, and finalizes the closing.
Uniform Commercial Code
Under this code, any security interests in chattels has to be recorded using a security agreement and financing statement. So, the recording of a financing statement gives notice to purchasers and mortgagees of the security interests in chattels and fixtures on the specific parcel of real estate.
In Closing..
It’s important to understand what interest the seller owns and if the seller is even able to convey ownership to the property. You would want to know any encumbrances that might limit the use of the property. It’s key to make sure you obtain a marketable title.
Check this link out for common problems with titles here: https://www.firstam.com/ownership/10-common-title-problems/
Thanks for reading!
