Title

What Is a Title?

A title is a legal term defining who owns a property. A title is different from a property deed, which is the legal document listing a property’s owner, because title is not a legal paper or contract — it is a word meaning someone (or some entity) is the legal owner of a property.

Titles are essential: Holding one means you are the legal owner of a property. You do not legally own property unless the property’s title is in your name or the name of your business or nonprofit. Want to update or improve your property? You might not be able to if you don’t hold the title. You also can’t sell a property without the title, and you may face other restrictions, such as being unable to rent the property to others.

What Is a Property Title Search?

You receive a title when you buy a property. The home buyer’s lender or title company performs a title search. Usually, the search begins once you’ve identified a property to buy and agreed upon a purchase price. In most cases, a title search takes a week.
The property title search should uncover anything that can hinder the transfer of property ownership, also called an “encumbrance.” Factors that can prevent a sale from proceeding include:

Liens: A lien is a legal right to a real property, often placed by a creditor. For example, there may be a tax lien on the property if the seller failed to pay their property taxes.
Zoning violations: If your lot isn’t appropriately zoned — for example, if it’s being used as a residence despite being zoned as commercial — it may hold up the sale.
Forged documents: An example of forgery that could flag a title search is if there’s evidence someone faked the property seller’s signature on the deed.
Illegal easements or encroachments: An easement either allows the property owner to use a portion of another property — like a driveway — or permits other entities to use their property. (A common example is utility providers who need to access buried lines.) If the property may not have proper access via a road or driveway, for example, it can cause title problems.
Errors: Misspelled addresses or inaccurate land surveys can hold-up a title.
Spouses or unknown owners: If the current owner is still legally married, their spouse may have a claim to the property’s title.

In the United States, all real estate transactions require a title search — and that title must be clear, meaning there are no unresolved issues, before the deal moves forward. You can address title discrepancies once the report is complete.

Once you have a clear title and the sale is complete, your name goes on the property’s deed. The title company files the deed with the local government and it becomes part of the public record. You’ll usually receive notice within a few weeks of closing that the deed has been recorded with the government. At that time, you have a legal claim to ownership of the property. Congratulations!

What Is Title Insurance?

Title insurance is protection against undiscovered issues with a title. Title searches are thorough, but there’s still a chance they won’t identify all problems with a title. Title insurance policy protects against unforeseen events — like a previously unknown property owner coming forward, or an old lien the title search didn’t uncover.

There are two types of title insurance: owner’s and lender’s.

Owner’s title insurance protects the property’s buyer. The policy applies the entire time the owner holds the property’s title. Banks usually require owner’s title insurance, but for cash purchases, the choice is up to the buyer.
Lender’s title insurance protects the bank that financed the purchase. Lender’s insurance lasts for the life of the buyer’s mortgage.

Usually, you pay title insurance in one sum at the time of closing. Sometimes a seller and buyer split the cost of the title insurance. Or, the buyer may be responsible for paying the entire insurance premium.

Pay attention, investors: If you’re purchasing a home online, pay attention to the hidden pitfalls of online auctions. These sellers typically offer “insurable title.” That means they won’t cover any preexisting issues, such as liens or unrecorded death certificates. You’ll be responsible for resolving these problems.

Do Real Estate Investors Need Title Insurance?

Yes. Title insurance protects a real estate investor’s investment, so even in cash deals, investors should take out a policy.

Why? First, it makes the property more marketable because title insurance is another way to show legal ownership rights of a property. This is especially true if you’re planning to flip the house.

Another argument for title insurance is cost: The policy premium is likely less than what it would cost to address any title issues. Legal fees and other expenses can escalate quickly if there’s a title problem. Title insurance makes those expenses unnecessary.

Yes, investors can perform elements of a title search themselves (here’s how to research liens), but title insurance is essential for protecting against future claims.

What Are the Different Types of Title Insurance?

There are many types of property titles:

Sole ownership is when one person or entity holds a property’s title, such as when a single woman owns her house.
Joint tenancy is when two or more people equally hold a property’s title.
Tenancy in common is like joint tenancy, except the owners hold individual titles for their part of a property. Land with two houses with different owners can be a form of tenancy in common.
Tenants by entirety refers to two people holding the title as one legal entity. If one of the titleholders dies, full ownership passes to the other.
Community property is when a married couple co-owns property. Either spouse can will or sell their half of the property.
Corporation ownership allows a corporation with shareholders to hold a property’s title. The corporation, not individual shareholders, owns the property.
Trust ownership works like corporation ownership, but allows trusts to hold a property’s title. Usually, a trustee maintains the property on behalf of the trust’s beneficiaries. A land trust is an example of trust ownership.
Partnership ownership is when two or more people agree to own property as a for-profit business.

What’s a Title Company?

A title company executes a title search. Either the sellers, buyers, or the financing lender select the company. When picking a title company, consider its reputation, fees, and professional experience.

Title companies charge for their services, and these fees can add to your closing costs. It’s essential to understand what a title company will charge to perform a title search.

Real estate agents work with many title companies, and often refer their clients to title companies they trust. Family and friends who’ve purchased property can also be good sources of title company referrals.

Can Title Companies Benefit Real Estate Investors?

Outside of performing a title search, there are a few ways that title companies can benefit real estate investors.

Having a good working relationship with a title company representative can help you find properties — for example, they can send you properties fitting your specifications. Or, you can ask them to find ownership information for a property you’re interested in buying.

Title companies can also help investors identify properties that may soon be coming to the market. For example, homeowners often sell houses after owning them between seven and 10 years. A title company employee can tell you the properties that have owned for that period in your area.

Real estate investors should interview a few title companies before choosing one. When you meet with them, let the title companies know your investment strategy. Ask them how they can help you achieve your goals. The more candid and honest you are with them, the more likely you are to work with a title company that will help your business.

Related Terms

Lender

Lenders are people or companies that allow you to borrow money with the promise that it will be repaid. Repayment includes principal and interest, and may include monthly payments or a lump sum payment.

Broker

A broker is a middleman, or matchmaker, who connects a buyer and a seller. In real estate, a broker’s job is to match homebuyers and home sellers, while being paid a commission.

Ingress

Ingress provides legal access for a landlocked real estate owner through a private road or driveway. Learn more about ingress and land use agreements.