Do you know the difference in a title search and a title abstract? Mortgage title insurance and owner’s title insurance? If you do, you are in the minority of the people that I help with land for sale transactions. Most that I deal with have no idea what these are and what the differences between them are. However, this is an area that is very important for the buyer to understand. I ask my buyers those same questions whenever I help them reduce an offer to writing.
Each one of these offers a buyer a measure of protection in making sure they are buying what they think they are buying. Sometimes things are best explained by example.
Mr. Buyer is buying 40 acres from Mr. Seller. Mr. Seller tells Mr. Buyer that he owns the 40 acres free and clear. Now this is a cash transaction and they decided to have an attorney just “draw-up a deed” in order to save everybody money. Based on this information, Mr. Buyer proceeds with the transaction and Mr. Seller grants Mr. Buyer a Warranty Deed to the property. Everything is great until 2 years down the road when Mr. Buyer decides he needs to sell the property. During the process, it is discovered that there were several outstanding judgments against Mr. Seller that had been attached to the 40 acres prior to the time when Mr. Buyer bought the property. The new buyer’s attorney tells Mr. Buyer that he will have to pay off these judgments against Mr. Seller and the property before he can convey good and merchantable title to the property. Mr. Seller has not been seen or heard from since the close of the transaction, and Mr. Buyer suspects he may even be deceased. The Warranty Deed is a guarantee from Mr. Seller to Mr. Buyer that the property was free and clear of all encumbrances and that Mr. Seller had every right to sell Mr. Buyer the property. It turns out that this was not the case. However, enforcement of that Warranty Deed is only as good as Mr. Buyer’s ability to find Mr. Seller and hold him accountable for the error. In this case, most likely, Mr. Buyer has to take it on the chin, pay off the judgments and chalk it up as a life lesson. If Mr. Buyer had a title search performed on the property prior to closing with Mr. Seller, then in all probability, Mr. Buyer would have known about the outstanding judgments against Mr. Seller before closing. Mr. Buyer could have insisted on the satisfaction of those judgments. In addition, Mr. Buyer could have purchased title insurance that would have been one more safety net in the event that the judgments were not found before closing occurred, or if there were additional encumbrances that did not show up at the time of the title search.
Hopefully, this helps you see the value in having a title search performed and what title insurance can do for you. Following, I will describe what each of these are and when you should use each one.
Title Search/Exam – When do you use this? EVERY time you buy a property. Even if you are buying it from your brother. Just do it. It’s comparatively inexpensive to the headaches it can save you. So, “What is it?”, you say. A title search and a title exam are terms that are generally used interchangeably. It refers to a process completed by a competent individual whereby the title history and public records regarding a property are searched from the present, backwards for a stipulated period of time. Most in my area look back 40-60 years in the title history. They are checking to see if the property was properly conveyed between all owners in the chain of ownership. They are checking to see if any interests or rights of ownership have been severed from the chain of title. They are looking for unsatisfied judgments and liens against the property. They are looking for anyone else that says they have a claim to or against the property. They use the public records available to make these determinations. Generally, title examiners work for attorneys and title companies, through which their services are available to you. This is the basic level of protection against scenarios like I described above. Again, have this done every time, without exception.
Title Abstract – A title abstract is basically the same thing as a title search except for a couple of characteristics. A title abstract, in its purest definition, does not stop at 40-60 years into the title history. It continues the history to the point of original land grants from the government or to a point where records are no longer available. This can be helpful when researching interests and rights severed from a property such as mineral rights…rights that may have been severed long ago. Some places include mineral rights searches in an abstract and some do not. Market conditions in a given area generally dictate whether or not you choose to have an abstract or a search done. Abstracts are generally more expensive and take longer to complete. Talk with your agent or attorney about what is the best option for you given the market in your area. In ten plus years, I have never had a buyer have a full abstract completed. However, another agent just 100 miles south of me that works with property in a different area almost always has an abstract done in the transactions he helps close.
Title Insurance – Title insurance is a policy that you buy at closing, or shortly thereafter, that insures you against errors and omissions made by the title examiner. To get title insurance a title search or abstract will have to be completed first. In the event that there is a claim against the title that originated prior to the title search, you are afforded some monetary protection by a title insurance policy. There are different types of title insurance that protect you in different manners. Most title insurance policies have some exceptions for scenarios in which they will not pay. These exceptions are explained to the buyer as “standard exceptions” , but what is standard will vary from market to market and by the company that issues the policy. Make sure you understand what those exceptions are. Make sure that the company that issues the policy is an established and well-rated company, just as you would when buying any other type of insurance. If they are not around when you need them, then it’s just as worthless as the Warranty Deed was to Mr. Buyer in our example above.
Owner’s Title Insurance – I recommend that all of my buyers obtain owner’s title insurance. It will protect the buyer, in the amount the buyer paid for the property, from now on. It will protect the buyer, even after that buyer sells the property. It puts the issuing attorney/agency in the position of defending the title to the property, and having a vested interest in doing so, should you ever need them.
Mortgage Title Insurance – When you borrow money against a property, the lender usually requires mortgage title insurance. This type of insurance is less expensive than owner’s title insurance because it has more limits. It’s only good during the time which the loan that it was issued with at the same time as the policy is still against the property. It’s only good in the amount of the loan that is still outstanding when a claim against the policy is made. This type is to cover the lender’s interest in the property, not the owner’s.
Simultaneous Issue Title Insurance – This is the best measure of protection that you can get. It is effectively owner’s title insurance with a mortgage title insurance rider. It covers both, and does the things outlined in both of the above types. It is, of course, more expensive than either. If you are borrowing money on the property, and the lender requires mortgage title insurance, go ahead and opt for simultaneous issue title insurance. The difference in the premium is not huge, and you will be protected from now on by the owner’s title insurance portion of the policy.
Title searches, abstracts, and title insurance are all tools for the buyer to use to mitigate risk in buying a property. Without use of these tools, the buyer is leaving himself open to unwarranted risk. If you are buying, at the very least, get a title search completed and make sure you understand the findings of that search. I recommend getting title insurance as well. Again, make sure you understand those “standard exceptions” to the policy as well.
This content may not be used or reproduced in any manner whatsoever, in part or in whole, without written permission of LANDTHINK. Use of this content without permission is a violation of federal copyright law. The articles, posts, comments, opinions and information provided by LANDTHINK are for informational and research purposes only and DOES NOT substitute or coincide with the advice of an attorney, accountant, real estate broker or any other licensed real estate professional. LANDTHINK strongly advises visitors and readers to seek their own professional guidance and advice related to buying, investing in or selling real estate.
Great info Robert. The old handwritten title abstracts that some landowners still have on their properties are some interesting history.
Good advice Robert. I would never personally buy property without title insurance.
I like an explanation I read once that said, “All other types of insurance protect you from a future event, whereas title insurance protects you from what has already happened.”
Buyers should get the simultaneous policies. It’s much cheaper and is better protection as you mentioned.
I’ve seen “near-misses” where if the prospective buyer hadn’t done the title search and order title insurance they would have been in a big mess with unnamed heirs popping up. We found 3 the day before closing on one tract a few years ago. It was sad to lose a deal, but great the buyers didn’t lose their land and money.
This is really informative for folks not familiar with the title search process. And, as a previous person mentioned — the chain of title can provide fascinating information about a property and its previous owners.
As a professional genealogist, I do “historic title searches” all the time and I’ve uncovered great nuggets of info to present to my clients.
Stephanie Hoover
PennsylvaniaResearch.com
It is great to have title insurance, BUT if you do not have a survey done on the property the title insurance is worthless. You will see in the policy the phase “subject to any statement of fact that a survey may disclose. As a surveyor I have seen alot of problems for the buyer that got title insurance without a survey. The worst beening that the house was not on the premises conveyed.
You should never buy property without a survey, you never know what problems exist on the ground without one. There could be fences over the line, buildings over the line, easements that are on the ground but no deed for it was found. You can have adverse possession claims and the list goes on.
Mr. Glasser,
I agree, that having a survey done should be part of most deals. There are some exceptions, but people should start from the standpoint of, “A survey needs to be completed”. Then if you find that one has been recently completed, or the cost of having it performed outweighs the benefits, you might choose to forgo the process. 40 acres that is in the middle of 5,000 and located 5 miles from a known point might not be cost effective to survey. The survey might cost as much as the land. Without a doubt though, most transactions will benefit from a survey.
NEED HELP ok so a friend of mine wants to sell me the house that she has lived in for 30 years but she left it abandon for 2 years so it’s not livable right now but will be in a few short weeks but the problem is she her sister and brother all own a part of the 8 acres so the deed to the house is in the sisters name and the “friend ” of mine writes a contract for me stating i am buying the house rent to own she also has no idea were the abstract is and the title of the deed is in her sisters name I want this house because it’s 8 acres for 25000 on contract what else can I do to cover myself beside a written detailed contract and do I need a abstract
New Buyer,
It isn’t clear what state you are in but I strongly encourage anyone in this situation (buying a property from a friend without realtors) to seek the advice of a local attorney. An attorney can both prepare the contract and also perform either a full or partial title search. A rent-to-own deal generally requires more than a standard contract as it involves two separate transactions: a lease and an option to buy. The contract usually only comes after the option is exercised. A rent-to-own situation involves more variables than either a lease or contract would standing alone.
The statement “the deed to the house is in the sister’s name” gives cause for concern – both the option and the contract must be in the name of the owner and signed off by the owner (or the owner’s personal representative if deceased) or it is essentially worthless.
This is an older post, so you may have already received quality legal advice but for anyone in a similar situation I strongly encourage an attorney review. The few hundred it may cost could potentially save tens of thousands.
I am an independent Title Searcher and need to purchase E & O Insurance. I was told that if I have a 1 Million dollar policy, I should NOT perform any Search on property valued OVER One Million or I would NOT be covered under the E & O Insurance. Is this true? The Title Closing Company is saying the Mortgage is LESS than One Million and I would be able to perform the search. I believe that I SHOULD NOT perform the search because the VALUE is OVER ONE MILLION. Please shed some light on this for me. It would be greatly appreciated.
It depends on your client. I carry half a million. The attorneys I work for generally expect you to pay their deductible in the event of a claim (which I have never had in 27 years, thankfully). Most here in NC expect $5,000. If you don’t have a policy you don’t have retroactive coverage, either.
It works like any other civil action. How many assets do you have? If you’re underinsured you can expect to lose them. You can protect them by setting up a corporation or LLC, which I strongly advise.
This is a great article but needs a correction. ALL title searches are abstracts regardless of the time period they cover. It’s just another term for title search or title exam.
Your article is great. Short and on point.
Let me pass on a personal experience.
“Easements and Encroachments” and why every buyer needs to have and “read” their survey.
I worked as a right of way agent, on a pipeline that was placed in service in the 1940’s, and recently sold to my employer. The pipeline ran around the far southeast end of Akron, Ohio. Since the 1940’s, most of what had been open farmland and forest had developed into residential and commercial properties. Obviously, the city, county or mortgage companies, did not restrict buildings, homes, outbuildings, septic systems, swing pools, barns, etc., from encroaching ‘on’ or being dangerously close to a pipeline. For almost 60 years, the seller did not enforce its easement rights and allowed these encroachments to be placed on the easement. The Feds require pipelines to be inspected twenty-six times a year and the only economical way is by a flyover. My job was to knock on doors and inform the owners of the bad news. I was surprised at how many property owners had no idea, or did not realize the gravity of a 50’ easement running thru their front/ back yards and under their homes and other encroachments. After we cleared the easement of all trees and encroachments, their yards reminded one of a plucked chicken. My employer was kind enough to pay for relocating the septic systems ($15,000 to $30,000) and waived a lot of the other encroachments. My employer could have forced the owners to pay for these relocations. However, we notified the property owners if the pipe requires maintenance or developed a leak; my employer would have no choice but to push “any” encroachments out of the way (usually with a bulldozer or track hoe).
Let me share on last note. On this same pipeline, several owners outside of the easement had huge, beautiful 100’ plus trees planted adjacent to the easement, and the limbs had overgrown our easement. We had the right to trim a tree perpendicular to our easement, thus ruining the looks of the tree. Usually, the tree will die if forty percent of the tree is removed. My employer gave the property owner the choice of letting us remove the entire tree or trimming that portion of the tree encroaching the easement. My employer did not charge the owner to remove the tree, however, we could have.
I was not a popular person.
Hi Robert, I am going to bid on a foreclosed property in the next couple of months, and I was wondering if it’s feasible/advisable to have my own title search performed, on the property, even if I am not the winning bidder.