5 Essential Steps of Title Search Process

A title search is a critical part of the real estate process. It ensures that a property’s title is free from legal issues before ownership is transferred. The title represents the legal ownership of the property, and any complications, such as outstanding liens, unpaid taxes, or disputes over ownership, could become the responsibility of the new owner. As a lender, it’s essential to verify that the seller has the legal right to transfer the property and that there are no encumbrances, like easements or debts, that could impact the loan security. A thorough title search helps identify these risks early, preventing future complications and protecting both the buyer and lender. 

This blog discusses the crucial steps in the title search process, ensuring you are equipped to move forward with confidence in property transactions.

Why Title Search Would be Beneficial for You as a Mortgage Lender

Here are several reasons why title searches are beneficial for mortgage lenders:

Verify Ownership

A title search confirms the seller's legal right to sell the property, ensuring they are the rightful owner. This eliminates the risk of fraudulent transactions and protects the lender's investment.

Identify Liens and Encumbrances

The search will reveal any existing liens, unpaid taxes, or other claims against the property. If there are unresolved issues, the lender may need to address them before closing the deal. Without this information, the lender risks inheriting those financial obligations.

Protect the Lender’s Security

The property is collateral for the mortgage loan. A clear title guarantees that the lender has a valid and enforceable claim on the property in the event of default. Any claims against the title could impair the lender's ability to recover the loan in a foreclosure scenario.

Avoid Future Legal Complications

By identifying title issues upfront, lenders can ensure that the buyer won’t encounter legal disputes post-purchase, reducing the risk of litigation and protecting the lender’s long-term financial stability.

Ensure a Smooth Closing Process‍

By resolving title issues before closing, lenders can facilitate a smoother transaction, preventing delays arising from unexpected complications during or after the sale.‍

Crucial Steps of Title Search

Here’s a breakdown of the crucial steps involved in a comprehensive title search:

1. Request for Title Search

The first step in the title search process for a mortgage lender is to initiate the search once the borrower has signed a purchase agreement and the sale is moving forward. This step is vital because it helps identify any legal concerns related to the property, which could affect the lender's ability to recover the loan amount in case of foreclosure or default. 

The mortgage lender, through a title company, reaches out to public record offices to gather necessary property documentation. The title search will provide a comprehensive history of the property’s title, ensuring that no legal obstacles are present that could affect the lender’s lien position, such as prior mortgages, unpaid taxes, or potential ownership conflicts.

2. Examine Property Records and Legal Documents

At this stage, the title company conducts a detailed examination of the property’s public records, looking for any existing liens or legal claims that might hinder the lender’s rights. This step is crucial because any existing encumbrances, like unpaid mortgages or judgments, may take precedence over the lender’s lien if the borrower defaults. For example, if there is an outstanding tax lien, the tax authority could seize the property before the lender can recover its loan. 

The title company ensures that the records show the title is free of such claims or that these claims can be cleared before the transaction proceeds. The lender needs to be confident that the property is not encumbered by any issues that could impact their financial interests in the property.

3. Verify the Title Against Public Records

Verifying titles against public records is one of the most thorough parts of the title search. This step ensures that there are no hidden legal filings against the property that could affect the lender’s position. The title company will look for a range of potential issues, including bankruptcy filings, judgments, tax liens, or any other encumbrances that could arise from previous owners. 

For mortgage lenders, this is a critical stage because any legal issues uncovered may affect the priority of their lien in the event of a default or foreclosure. For instance, unpaid property taxes could lead to a lien that supersedes the lender’s mortgage. By confirming that no unresolved issues are on public record, the lender’s position is better secured.

4. Confirm Seller’s Legal Ownership

It is vital for mortgage lenders to verify that the seller has the legal authority to sell the property. This step ensures that the buyer is acquiring the property from the rightful owner, preventing potential legal complications that could arise from conflicting ownership claims. For example, in the case of divorce, bankruptcy, or disputes among heirs, the property title may not legally be transferable unless specific legal processes are completed. 

Confirming the seller’s ownership and that all legal requirements are met provides assurance that the lender’s interest will be protected and that the loan can proceed without complications. For lenders, this step is an important safeguard against any future disputes over the property’s ownership.

5. Examine Property Taxes and Assessments

This step ensures that all property taxes and assessments are up to date. Outstanding taxes or assessments could result in a tax lien that might take precedence over the lender’s mortgage, complicating the foreclosure process. If the property has unpaid taxes or assessments, these must be cleared before completing the transaction. 

For mortgage lenders, confirming that the borrower will not inherit any back taxes or tax liens is crucial. The lender needs assurance that there will be no hidden obligations that could undermine the property's value or complicate the process of recovering the loan in case of default.

6. Review Potential Title Defects or Clouds on the  Title

A "cloud on title" refers to any unresolved issue that might affect the validity of the property’s title. For mortgage lenders, identifying such clouds is crucial to ensuring the property is free from legal disputes that could complicate future ownership or foreclosure proceedings. 

Examples of clouds on title could include fraudulent transfers, incomplete or incorrect records, or competing claims from previous owners.  If any such issues are discovered, the title search allows them to be resolved before the loan is finalized. For lenders, ensuring the title is clean and clear of any legal disputes helps protect the investment and avoid any legal challenges that might arise later.

7. Title Insurance Issuance

Once the title company has completed the search and confirmed no significant issues or encumbrances on the property, they issue title insurance. Title insurance is a critical step for mortgage lenders, as it protects against any unforeseen legal issues with the title that could arise after the transaction is completed. For example, if a defect in the title is discovered after the sale, the insurance will cover the lender’s financial losses. 

This coverage gives the lender confidence that their investment is protected, especially in cases where title defects or disputes only surface after the loan has been funded. Without title insurance, the lender would face substantial risk if a defect were discovered.

8. Address Any Discrepancies or Title Issues

During the title search, discrepancies or issues with the property’s title may surface, such as unresolved liens, conflicting ownership claims, or inaccurate property records. These issues must be resolved before the mortgage lender can approve the loan. If the borrower is to inherit outstanding debts or there is a question about the seller’s legal right to transfer ownership, the lender cannot proceed without first addressing these concerns. 

This process might involve clearing liens, paying unpaid taxes, or resolving disputes over ownership. For mortgage lenders, ensuring that all discrepancies are cleared before the loan is funded is essential to protect their financial interest and maintain the validity of the mortgage.

Key Documents Involved in the Title Search Process

During a title search, several key documents are reviewed to ensure that the property’s title is free from any legal issues or claims. Here are some of the most important documents involved in the title search process:

Deed of Trust or Mortgage Agreement

This document outlines the loan terms and the lender's interest in the property. It will be reviewed to ensure that the mortgage is properly recorded and that the lender’s interest is properly secured against the property. 

Property Deeds

Property deeds are essential documents that record the transfer of ownership from one party to another. A thorough review of the property’s deed history helps verify the chain of title, confirming that the current owner has the legal right to transfer the property. 

Tax Records and Assessments

Tax records are vital for identifying any unpaid property taxes or assessments that may be attached to the property. Unpaid property taxes can result in a tax lien, which could take precedence over the mortgage lender’s lien. 

Lien Search Reports

A lien is a legal right or claims against a property due to unpaid debts. Lien search reports identify any outstanding liens, whether from unpaid taxes, judgments, mechanics' liens, or other debts, that might be attached to the property. 

Judgment Liens

Judgment liens are liens placed on a property following a court ruling. If there are any outstanding legal judgments against the property owner, these could pose a significant threat to the lender's interest. 

Plat Survey

A plat survey is a detailed map or diagram that shows the boundaries of the property and any easements or encroachments on the land. It is essential for confirming the physical boundaries of the property and identifying any potential issues with neighbors.

Bankruptcy Filings

If the property owner has filed for bankruptcy, this document can reveal whether any bankruptcy proceedings affect the title. Certain types of bankruptcy filings can place restrictions on property transfers or affect who holds the property rights.

Affidavit of Title

An affidavit of title is a sworn statement by the seller affirming that the property is free from any encumbrances or legal claims other than those disclosed. It helps confirm the seller's claim of ownership and ensures that all known issues have been addressed before closing.

Power of Attorney Documents

If the property owner is not available to sign legal documents during the closing process, a power of attorney document may be required. This document designates a representative to act on behalf of the owner in matters relating to the sale. 

Release of Liens

If there are any existing liens on the property (e.g., from previous loans, judgments, or tax issues), the lender will require that the liens be formally released before the sale. A release of lien document shows that a lienholder has agreed to remove their claim against the property.

Conclusion 

Mortgage lenders often face several challenges during the title search process that can complicate and delay property transactions. Discrepancies in the chain of title, like missing or improperly recorded deeds, can result in ownership disputes that hinder property transfer. Another challenge is identifying property encumbrances, such as easements or restrictions, which could limit the property's use or affect its market value. Outsourcing the title search process to a specialized service provider like Invensis can help mortgage lenders address these issues efficiently. 

At Invensis, we help mortgage lenders navigate the complexities of the title search process by offering specialized mortgage processing services that streamline and simplify the process. Our experienced title experts are skilled in identifying potential issues such as unresolved liens, property encumbrances, and discrepancies in the chain of title. By utilizing advanced tools and databases, they ensure that all relevant property records are thoroughly examined, reducing the risk of delays or complications during the mortgage approval process. Contact us now to enhance operational efficiency while relying on expert support for a seamless title search experience.