A title company will conduct what amounts to a legal background check on the property you’re considering buying.  In conducting this legal research, title companies perform three important functions.  First, they check to make sure the seller of the property is, in fact, the legitimate free and clear owner of the property.  Secondly, they will tell you if anyone else has legal claims (liens) on the property.  Finally, the title company will issue title insurance to you (at a price).

By verifying that the seller you are dealing with is the legitimate owner of the property, a title company can save you from potentially bizarre and expensive legal issues.  Title companies search through public records to establish what is known as a “chain of title”.  Each former owner of the property can be visualized as a link, together all the owners throughout the property’s history form a chain of successive ownership that leads right up to the present day.  Title companies will try to identify whether or not the chain of title shows convincingly that the seller of the property actually owns (and can therefore sell) the home.  The title company will also identify which rights and interests (such as the right of possession, occupancy, inheritance, etc) the seller can legally pass to you.

As an example, picture this – Randy, the guy who sold you your home wasn’t actually the owner, but he doesn’t know that and neither do you.  Instead, his great uncle Ale inherited the house 6 months ago because Randy’s grandparents transferred the deed to Ale right before they died for some unknown reason.  Uncle Ale who was in poor health, completely forgot about this and Randy was unaware that anything even happened so neither bothered to review their inheritance very carefully (Uncle Ale was already 88 and didn’t really care anyway).  To top it all off, unfortunately Uncle Ale has just passed away.  However, his son Mike found out that he now owns the house as he was sifting through some of Ale’s old things.  Mike and his Swedish bride are now suing you to establish that they are the rightful owners the home you just bought.  Believe it or not, bizarre events like this can happen.  And given that many properties in the U.S. have chains of title stretching back well over a hundred years, it’s a good idea to get your potential home checked out.  A title company will search public records to see if issues exist and just as importantly, it will issue insurance to protect you if a problem the company didn’t catch presents itself later on.

There are also scam artists out there who try to sell homes they don’t actually own.  These people may be professional scammers or people who have lost their home for whatever reason and are trying to make some quick cash.  In either case, if you buy a home from someone who doesn’t own it, it isn’t actually yours; all you’ve really done is give a thief a lot of your hard earned cash.  Using an independent title company to check out the property before you hand over any money can help you avoid this type of scam.

More common than outright scams are lien issues.  As discussed earlier, a title company will alert you to any liens against the property of interest.  This is important because once you become the owner of the home, you can become liable for many of the previous owner’s debts (such as unpaid property taxes).  By alerting you to liens on the property, a title company can help you avoid these potentially expensive issues.

As stated above, the title company will issue you, the home buyer, what is called title insurance.  This insurance will protect you from serious financial loss if a title problem crops up that the title company didn’t catch when conducting the search.  Since public records don’t typically record every detail of what has happened to a property and who owns what, there is always the potential for a legal problem to appear with regard to the title.  For a one-time premium, the title company will cover claims related to problems that could have been discovered from the public record search and “non-record” defects in the title.  Non-record defects are claims to the title that come out of left field and couldn’t have been easily discovered by you or the title company.  While the coverage is great, the best part is that the insurance will last as long as you hold the title.

So for a relatively low up-front cost, you will not only be alerted to possible problems before you sign any papers, but you will also have the peace of mind that comes with knowing any future legal challenges to your title will be covered under the insurance you purchased.

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