What is a Title Examination?
Title examination is one of the key elements in real estate transactions. It ensures that the title to a property is marketable, or suitable for sale. Title examinations look to see if there are any encumbrances on a property. An encumbrance is anything that could disrupt the sale of the property, such as unpaid tax liens or any restrictions placed on the property. Examinations also review the history of ownership, including all trusts, will and deeds associated with the property in the past. This is called reviewing the chain of the title, and inspects whether the property's ownership may be legally tied to anyone other than the current buyer and seller.
Title examination occurs while a property is under contract. When under contract, the buyer and the seller undergo a round of negotiations and inspections that could last up until the closing date. Anything found awry while the property is under contract gives the buyer the chance to back out of the sale, or negotiate with the seller to rectify the situation. Examining the title is perhaps the most important part of this process. Without it, the buyer could end up purchasing a property that legally belongs to someone else, or perhaps which has unpaid debts that could eventually lead to someone else claiming legal ownership of the property.
Title examination is usually conducted by a title company or qualified attorney. Either one of these sources will usually require a title examination fee. If a loan is being taken out on the property by the prospective buyer, the lender may cover the cost of a title examination fee because it's also in the lender's interest to ensure the title is marketable. In some cases, however, the cost of an examination may fall on the buyer or even the seller, depending on what is negotiated into the contract.
Most of the property tax and ownership history researched during a title examination are public record and could be inspected by the buyer without the aid of a third party. For legal purposes, however, a third party is almost always required and certainly recommended. Without a professional examination, the buyer or seller will be unable to take out title insurance on the property. Title insurance is very common within the United States, and has steadily gained popularity throughout the rest of the world. Title insurance legally recognizes that a professional third party has examined the title to a property and determined it marketable. If in the future the title turns out to be flawed, the buyer or seller who purchased the insurance normally will be protected from and compensated for some or all of the resulting damages.
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