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When you buy a home, you’re assuming the person selling it is the owner. What if they aren’t? What if someone else owns the property, or there are liens on the property that the seller didn’t disclose?
These are all issues that would prevent a clear title and make a home purchase a nightmare rather than a dream come true.
Understanding a clear title, how it works, and why you should want it is important to buy a home.
What Is a Clear Title?
A clear title means the owner owns the home free from any liens or claims to ownership. A title that isn’t clear may not have clear ownership, or liens may lay claim part of the property value.
A clear title shows buyers and lenders the home may transfer without issue – there won’t be any claims to the ownership or legal issues.
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How Do Clear Titles Work?
A clear title shows buyers and lenders the status of the property’s ownership. Since liens transfer with a property, not a person, it’s important to know if any exist on a property.
A clear title shows you that the chain of ownership is clear – no one can lay claim to the property due to a divorce, inheritance, or another issue.
It also shows that all debts have been cleared that were tied to the property.
The one remaining lien may be the owner’s current mortgage, but that will clear when you buy the property and the closing agent pays off the seller’s mortgage.
How to Check for a Clear Title on a Property
You can check for a clear property title, but you won’t get all the necessary information. A quick search at the county records office, or online (most counties publish public records online) will tell you if there are ownership issues or liens.
But, public records don’t show everything. Once you secure financing, the mortgage lender will hire a title company to do a title search.
The title examiner will look at the chain of ownership for the last 10+ years, looking for any kinks in ownership that could be trouble.
If anyone has any type of ownership or claim on the property, they won’t deem the title clear.
Why Are Clear Titles Important in Real Estate Transactions?
A clear title ensures you’re making a good purchase. If you buy the property only to discover the seller had liens on it – you’ll be responsible for paying the liens you had nothing to do with in the first place.
Clear Titles vs. Title Contingencies
A clear title is what a title contingency requires or gives you time to find out. If you have a title contingency, you have time to complete the title search and for the title company to tell you whether or not the title is clear.
If the title search shows issues within the title, you can back out of the contract and keep your earnest money.
>> More: Different Contingencies to Know
Are Clear Titles Required on Properties?
Clear titles are required on properties when you’re securing financing. Lenders won’t close on a loan if the home doesn’t have a clear title.
However, if you buy the home in cash, you may not need a clear title. If there are ownership issues, I’d steer clear of the transaction.
Many investors buy distressed properties or properties sellers can’t keep up with financially, taking care of the defaulted debts and then selling the property for a profit.
Bottom Line: What Is a Clear Title?
A clear title means peace of mind. You’ll know the property doesn’t have liens that you’ll have to cover, or you won’t have someone coming after you for ownership in the home.
Unless you knowingly buy a home without a clear title, it’s something you should look for and maybe even protect yourself with by asking for a title contingency.
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