One of the few times I told my father he did something wrong involved him buying a couple of lots from an old gentleman allegedly at the same price the man had purchased the lots several years before. The lots are in a subdivision in the mountains in a very desirable location overlooking a major river. I asked him what attorney he had used, whether he had a title search done, and if he had purchased title insurance. When he told me that he hadn't purchased title insurance, the warning bells and alarms started going off in my head.
Two principals in my professional life that I live by kept going over and over in my mind. First, if it is too good to be true, it probably is; and Second, in real estate, everyone is guilty until proven innocent.
Why was I so adamant about my parents getting a title search other than I would be the one expected to fix any problems at a highly discounted fee?
Black’s Law Dictionary defines a title search as “Examining deeds, land records and documents to verify the seller is the legal owner and there are no encumbrances affecting title” (Black’s Online Dictionary, 2d. Edition).
Another definition of a title search is a snapshot in time of a specific real property showing the owners and those parties having an interest in the specific real property being searched.
Why is this so important?
First, if you are going to buy a tract of land from someone, you want to make sure they actually own the property AND are the ONLY owners of the property. You'd be very disappointed if you bought the land at full value and found out you own only 20% of the property along with the seller's brothers and sisters. If you are expecting to be the sole owner, you need to make sure everyone who has an ownership interest is, in fact, signing the deed conveying the property. If the owner or one of the owners is deceased, a title search will reveal whether an estate has been filed in the county the property is located. In the search, the county’s clerk of court’s estate division will be checked to see if an estate has been opened and whether a will is or has been probated and will identify the deceased's heirs.
Another common issue a title search discovers is whether spouses that took title together are still married or whether they have divorced since purchasing the property. I can’t count the number of times a seller thought they owned the property because a district court judge entered an order stating they are to get the property in the divorce settlement but later find out a deed was never prepared for the ex-spouse to convey the property over to the selling spouse. You can imagine what nightmares arise when you have to go back to an ex asking if they will sign a deed conveying their interest several years after the divorce decree was entered. One client actually paid his ex-wife twice, once as part of the divorce settlement and again thirty-some years later when she conveyed her interest to him so he could sell the property.
The second important reason for a title search is to see if any third parties have a financial interest in the property. The most common interest would be a lender with a mortgage or whether a municipality is owed taxes. Other third-party interests would be assessments for utilities or a homeowner’s association, which would also need to be contacted for its annual dues, judgments against the owners of the property that would attach or a security interest such as a UCC filing which are typically found when an in-home water treatment system has been purchased and financed by the owner. These are the main financial interests a title searcher is looking for when performing a title search.
It is important that these monetary interests are satisfied when the property is transferred or they can become problematic for the new owner because if these financial interests of third parties attach to the property, they will have a superior interest to the new owner and will need to be settled before the parties release those interests. Imagine buying a piece of property, and a few months later you get a notice of foreclosure because the HOA dues, mortgage lender, or county tax office had not been paid because the seller didn’t take care of the liens with the proceeds paid for the property.
The final, but no less important issue a title search will reveal is whether there have been any changes to the quantity of land the seller originally obtained when they bought the property. Has the seller developed any of the land and subdivided the acreage into tracts or lots? Has any of the property been taken to widen a road or put through a road? Has the boundary line changed because a revised plat was filed by neighbors? It is quite a surprise when neighbors that filed a revised plat twenty years ago find out that there were never deeds prepared conveying the revised portions of property to each other reflecting the changes in the revised plat.
When buying real property, it is very important to, at a minimum, have a title search done to reveal who the owners are, who needs to be paid in order to get clear title, and to make sure the property that the buyer is getting all of the interest and all of the property that has been bargained for. Otherwise, a buyer is going to find it expensive to try and clear up the issues that would have been discovered in a title search or find that their investment is lost completely.
My father did hire a real estate lawyer to perform a title search on the two lots, and he purchased title insurance to protect his investment. The title search revealed that the old gentleman did actually own the two lots and could convey the property free and clear of any liens or past due taxes. HOWEVER, the buyer of the neighboring lot to my parents property was not too happy after telling my father that he was trespassing, only to find out his lot did not include a major portion of my parents lot(s) which would have been discovered if he had a title search performed.