Title to real estate is not evidenced by any one single document. It is a reflection of legal ownership and the evidence of such ownership that can serve to determine the quality of an owner's interest. A deed is one source of evidence of ownership. It is not considered conclusive proof, however, since the owner's title may be defective due to unknown defect in the previous ("backwards chain") owner's property. Since possession of real estate may be lost or the value of the property might be greatly impaired due to a title defect, and since there are many defects that are not detectable upon appraisal, it is of great importance that the title of the property not only be thoroughly investigated, but that it be protected by a title insurance policy.
The term "title" is conceptual, since there is no "real estate title" to any land which would be equivalent to the document that one receives when buying a car. In addition, the deed to the property is not the title itself, but only evidence of it, which can be an added challenge.
Title may be affected by encumbrances, which are limitations of ownership. Certain encumbrances to title may need to be removed before clear title may be passed. The evaluation of the quality of title (owner's policy) and the commitment to ensure it (loan policy) are critical phases in a real estate transaction. If title is found to be unmarketable and uninsurable, the lender will not provide mortgage funds needed to complete the purchase, nor will the purchaser wish to proceed until the defects are corrected.
What are the ways title may be transferred?
Real estate title is usually conveyed voluntarily by the purchase and sale of a property, but can also pass through sale a variety of other ways. For example, a property owner may divest of himself or herself of voluntarily title, or it may pass involuntarily. The types of transfer are as follows:
| Voluntary transfer - the act of one person giving title freely to another person Purchase - gaining title by buying a property (the most common type) Gift - receiving title to property without giving compensation Devise - receiving title to property from one who dies via being named in a will Involuntary transfer - receiving title to property from one who dies and does not leave a will or name an executor - this is controlled by law and determination of right of receivership is a complex legal issueLegal action - receiving title to property through bankruptcy, eminent domain, tax sale, foreclosure, escheat or other legal method. Adverse possession (Title by Prescription) - receiving title to privately owned property through open, notorious, continuous, and hostile and exclusive possession of it, under claim of right, for the statutory period. One may lose title to a piece of property without receiving any compensation for it by failing to exercise sufficient control over it, while another uses this land and controls it as if he/she were the rightful owner. |
Where is title documented and how can it be obtained?
Records and documents related to the transfer of real estate are maintained in a central place for convenient reference. Deeds and other legal instruments affecting the title of a property are maintained by the Registrar of Deeds or County Clerk in the county where the property is located. Entering this information into public record (which serves as legal constructive notice to the world) is called recording. Constructive notice is recognized by law, and once something has been recorded, all are legally charged to know of its existence. The legal presumption is that if one "could have known" that the recording existed, that one "should have known" this. It is for this reason that it is always possible, and strongly suggested, that the public record regarding a property be examined, and that the property itself be inspected prior to purchase to see if there are any defects to title prior to purchase.
In addition to recording deeds, many other legal instruments which can affect title status also need to be recorded. These include:
 MortgagesSatisfaction of mortgagesEasementsDeed restrictionsOptionsAgreements of saleLeasesAssignmentsMechanic's liens |
How do I know if the seller of a property holds the interest stated and how do I know how good the quality of the title really is?
Prior to the closing of the title, title records should be closely examined to see if the seller holds the interest that he/she claims to hold and to be certain that the quality of the title is there. By the act of conveying the property alone, the seller cannot guarantee that the title is good. It is the buyer's responsibility to protect himself/herself. Since the buyer, however, is usually not skilled in this area, there is usually a need to find someone who can independently search the history of a property as a condition of eventually insuring it for title. This can be done using a title company or an attorney. This title search is a search of the public record, which includes documents recorded in the county clerk's office or the registrar of deed office, state records, municipal tax and utility records, and state and U.S. District Court records. The potential number of various types of records within these categories is large and the search can often be long and tedious, requiring skill and experience.
As a result of such a search, an abstract of title will be prepared by an abstracter, who will produce a condensed historical record of all grants affecting the property, as well as all deeds, mortgages, wills and judicial proceedings, along with other recorded liens and encumbrances, which can affect title. Using information relevant to property transfers, a chain of title will be produced, which will trace an unbroken chain of former owners backwards for up to 60 years, a statutory limit of the number of years after which further claims against the title cannot be made. Any breaks in the chain during this period (also called gaps) would stop clear title from being passed until the problem is corrected.
The report of these results would be given to the buyer in the form of a title report, which is the document produced by an experienced examiner who reviews all relevant information and provides an opinion of the current condition of the title for a specific property. This is critical in any real estate transaction since refusal of a title company to insure the title in essence means that no settlement can take place until the defects are cleared up. It is also important to note that examination of title records hold the parties involved only to the extent of reasonable care and diligence and do not ensure the buyer's title from the many defects that can affect it. Only a title policy can insure a protected title.
Why is title insurance so important?
Title insurance is so important because the results of even the most careful title search may show only the tip of the iceberg with regard to title history of a certain property. Title insurance is necessary because no one can really know how much else, if anything, is still uncovered. In reality, a title search is no guarantee of clear title.
What is title insurance, and what exactly are you getting when you buy an owner's (buyer's) title insurance policy?
Unlike car insurance, life insurance, or home owners insurance policies, which provide protection on items after the policy is purchased, the title insurance policy is a policy of indemnity. It says that the insurer will indemnify the insured against any loss if the title to a property turns out to be different from that shown in the policy - or protects against loss incurred before the policy was issued. A title insurance policy consists of two parts - Schedule A (the Commitment - the terms of the policy) and Schedule B (Section 1 - the Requirements and Section 2 - the Exceptions). Unlike other forms of insurance, title insurance does not insure against loss for matters that occur at the time and date that the policy was issued (except in certain instances, such as a contractor's lien coverage), but for matters that occurred in the past. Potential loss could be caused by off-record matters (such as unknown heirs) or by any number of other matters not listed in the policy.
The owner's/buyer's policy has four insuring clauses, and the loan/lender's policy has eight insuring clauses, which are broad in scope and, just like any other type of insurance the buyer may have, may have exclusions from coverage and certain stipulations that narrow the coverage provided by the insurance company. Also, the "schedule" portion of the policy will contain exceptions to title that will not be covered matters. For this reason, it is greatly suggested that an attorney or insurance underwriter examine the title insurance policy and explain the details to the owner/buyer.
The four insuring claims in the owner's policy and the first four claims in the loan policy are the same:
| 1. The first insuring clause is title to the estate, property,
or interest described in Schedule A being vested other than as stated therein.
Examples of situations that might be covered could be that someone else
has obtained title by adverse possession or that one of the grantors in
the backwards chain of ownership didn't own all of the title to the insured
land.
2. The second insuring clause is any defect in or lien or encumbrance on the title. Examples of covered defects would be a material mistake in the description of the insured tract or the competency of a past owner. One matter that is not covered is the physical condition of the property. The fact that the land would be found to have toxic waste on it would be a matter of physical condition, but not a title matter. Another matter not covered by title is the economic value of a property - even if a property is considered unsaleable or of no value, it is not covered because this is not a lien, defect, or encumbrance. 3. The third insuring clause is unmarketability of the title - which is an alleged or apparent matter affecting the title to the land which would entitle a purchaser to be released from the obligation to purchase when the sale contract requires delivery of marketable title. Marketable title involves a determination of whether the matter complained of is a "defect" in the title so as to allow a buyer to back out of the deal if the title isn't "good enough". 4. The fourth insuring clause is the lack of right of access to and from the land. Note: the fact that physical access may be difficult because of terrain conditions does not invoke the coverage. The right to access is the legal right of access and not the quality of the access. |
The four remaining clauses pertain to the loan policy only, and the lender usually has a good idea what they are getting!
What is Affidavit of Title?
When a title insurance company agrees to insure title, it does so not only on the basis of its own research, but also on the basis of representations made by the seller and the buyer. Such statements as to induce the title insurer to insure the title are contained in the affidavit of title.
An affidavit is a sworn statement given by the seller about the history of the property, to the best of his/her knowledge. This information is beneficial as it can clarify matters that are fuzzy and may be preventing transfer. The seller attests that he/she is of legal age, and affirms marital status, status of legal judgments, and declares that he/she has done nothing that could encumber title - activity which does not appear in any public record or other source. As stated earlier, since all information cannot always be obtained, this "swearing to tell the truth" is the only acceptable alternative.
OHIO CAPITAL CORPORATION FOR HOUSING