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You just bought a rental property — congratulations! All you need is a tenant and you’re on your way to monthly cash flow that pays not only for the property but you as well.
After a few months of you receiving this monthly cash flow, one day you receive notice from someone who claims ownership of the property.
This doesn't make sense, you think to yourself.
As it turns out, there was an issue with the property’s title that predates your purchase. Now, it can lead to serious issues for you and your plans for the property.
What is a Title Search?
A title search is performed before the purchase of a property to ensure that the person selling the property has the full legal right to do so.
A free title search can uncover liens against the property from, for example, unpaid mortgages and unpaid taxes.
Before you invest in a property, it’s important that you conduct a title search, in order to make sure that none of these common title issues can impact your ownership of the property — and you don't find yourself in the example above.
In most cases, a title search must be performed in order to obtain title insurance on a property.
Aside from ensuring ownership, a title search can also:
- uncover any boundary issues between the property you’re considering and the neighboring plot
- any encumbrances that may hinder you from maximizing your return on investment
Title Search Options
Next, we’ll look at how to do a title search — both paid and free.
How to Do a Free Title Search
To do a free title search, you do so online or in person.
You can start by visiting the courthouse of the country or district where the property that you’re considering is.
Chains of deed and title are public records, so you can access all of the information that pertains to a particular property.
Many areas provide title information on the county assessor’s website. Depending on when your county implemented this feature on their website, this may be a viable option.
Remember, part of your free title search should include checking the information that you uncover.
If you have any questions about the findings of your free title search, make sure that you discuss them with a real estate attorney of your choosing.
- outstanding taxes
- other legalities
While the search itself may be a free title search, you may have to pay a real estate professional to help you with the removal of any clouds that turn up on your free title search.
How to Do a Paid Title Search
One of the simplest options is to hire a title company to do the search for you.
However, this won’t be a free title search, given that they will need to be compensated for their services.
The cost of a title search from a title company ranges anywhere between $100 and $250, depending on that company’s policies.
Additionally, you can hire an attorney who knows how to do a title search. Obviously, the amount that he or she charges for a title search will vary depending on their own policies.
3 Free Title Search Red Flags
When doing a free title search, it's important to keep an eye out for red flags that can negatively affect your real estate investment.
#1: Liens Against the Property
If the previous owner took out a second mortgage or had yet to pay the original mortgage on the property, your free title search may uncover a lien against the property.
Unpaid taxes can also result in a lien that may appear on your free title search.
#2: Encroachment with Neighboring Property
One of the most potentially damaging issues that come up in a free title search is encroachments.
If any part of the home that you’re purchasing crosses onto the neighboring property, you may be financially responsible for rectifying the situation — which can be a red flag.
#3: Emergence of Long-Lost Family
A free title search may also uncover distant relatives of a previously deceased prior owner who claim to have an ownership stake in the property.
When a property gets tied up in heirship, it can take years for the probate courts to clear the property — certainly a red flag.
Do You Need Title Insurance?
Even if your title search — free or paid — doesn’t uncover any issues, we recommend paying the extra cost for title insurance.
Title insurance protects you from future discoveries about title issues that may not have shown up on your free title search.
Unlike other forms of insurance that are a recurring fee, title insurance is a relatively cheap, one-time fee that helps protect you from any future findings about the title.
The Bottom Line: Title Search
Depending on the types of issues discovered in your title search, you may decide that a potential investment property simply isn’t worth the headache associated with clearing up the issues.
Or, you may find that it has no title issues, and you can rest easy knowing that your property is safely under your ownership.
The most successful real estate investors understand the importance of having the most information possible about a property — a title search provides exactly that.