Nicki & Karen

What Is Chain of Title And Why is it Important?

Nicki & Karen » November 27, 2022

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chain of title

When you purchase any type of home, you must be able to prove that you own the home, which is why the title document is essential. This legal document specifies the most important details about your ownership of the property. Keep in mind, however, that titles aren’t made when you purchase the home.

The existing title for the property will be transferred over to you, which is how you prove that the home is yours. Even though title ownership is meant to be a simple and straightforward process, there are problems that can occur throughout the title transfer, which is what the chain of title is meant to keep track of.

Without the chain of title in place, you wouldn’t be able to determine who owns the home when there’s confusion about property rights. The following article takes a more comprehensive look at the chain of title and how you can locate it.

What Is Chain Of Title?

The chain of title for a property is its story. This document details who the first owner was, who built the home, and who owned the home since it was first purchased. If there have been five owners since the original buyer, the details of all five owners will be listed. Pieces of land that don’t contain a home can also come with a title.

When written and updated correctly, the chain of title should consist of continuous ownership without any gaps. While a title or a deed can also be used to prove the current ownership of property, the chain of title is essential to indicate the order in which owners received the title.

There are a few additional documents that take part in creating a chain of title. The deed is a written document that’s used to transfer ownership in the property to someone else. A title is a collection of rights that a party has in a piece of property. The person or company in question could have an equitable interest or legal interest in the property. The buyer is given a series of legal privileges that covers what this person can and can’t do when owning the home. These privileges are known as a bundle of rights.

These documents form the chain of title. In the event that an error is made when recording the property could, there are numerous issues that could affect the chain of title. In many situations, someone who holds a deed that’s been recorded properly wins out over someone who doesn’t have one.

chain of title summary

Why Is Chain Of Title Important In Real Estate?

Properly recording land ownership is important for several reasons. For one, a chain of title is essential for the productivity of nations since it gives people the ability to grow with the understanding that the land they’ve purchased is owned by them. Land ownership has long been important for tax liability since people feel as though they have an obligation to pay taxes in order to take advantage of the benefits that come with home ownership.

How a Chain of Title is Established

A chain of title is updated over the years. Whenever the property title is transferred over to a new owner, this chain will grow. Keep in mind that certain documents must be filed with the local records office for any updates to the chain to be legal.

When someone buys a home, the chain of title is identified with a basic title search. The buyer typically hires a title company to complete this process, which requires looking through records that are held at numerous public offices. Once this information has been gathered, the title company will show a title abstract, which includes all of the information the buyer requires before purchasing the property.

How Do Liens Affect Chain Of Title?

If you decide to purchase a home with the assistance of a mortgage loan, you won’t have full ownership of the property. You’ll only own the entire property once you’ve paid off your entire mortgage loan. Before then, your lender will own a portion of the property.

Homes that were bought with mortgages are attached with a mortgage lien. This type of lien means that the property can’t be sold unless the remainder of the mortgage loan is repaid with the profits. Since the buyer understands that the lien will be attached when buying a home with a mortgage loan, this is an example of a voluntary lien.

It’s also possible for an involuntary lien to be placed on a loan, which could be a tax lien or a judgment lien. A tax lien occurs if you haven’t paid your property taxes on time each year. Judgment liens take place if a court states that you never paid a contractor for the work they performed. If you live in an area with a homeowners association, they could also put a lien on your home if you haven’t paid dues or adhered to the HOA bylaws.

Keep in mind that liens are attached to the property as opposed to the owner, which is why they need to be paid before you sell your home or transfer the title. While there are times when the buyer may agree to cover some of the costs associated with the liens, this task is usually left to the seller.

how do liens work

How Do You Know If Your Chain Of Title Is OK?

If you want to be certain that a chain of title has been properly recorded, your title company will make sure that there aren’t any problems with the title before the home has been closed on. Since claims on a property can be filed at any time, you might want to purchase title insurance in the event of a future claim.

Title insurance protects you from financial loss that the claim could cause as well as any court costs that arise. Even though a claim can lead to a foreclosure, this outcome is less likely if you’re in possession of title insurance.

Common Chain of Title FAQs

The chain of title isn’t always clear and easy to understand. The answers to the following questions should help you learn more about what the chain of title entails.

How Do I Find the Chain of Title for a Property?

The chain of title for a home can be located at your county’s records office. However, you should leave this process to the title company you hire. Every jurisdiction has different requirements and guidelines for how property titles are handled. It’s possible that a title professional will need to examine numerous filing systems and visit several public offices to find the home’s legal history.

What Do Liens Have to Do with a Chain of Title?

Liens provide creditors with a legal right to an aspect of your property. When looking specifically at mortgage liens, the lender that applies this lien will state that you won’t be able to sell your home until all of your mortgage debt has been repaid. Keep in mind that liens can be placed on a property for unpaid debts even after the sale has been closed on. If this occurs, you’ll be directly responsible for paying off the lien.

What are Special Considerations for a Chain of Title?

Once you’ve established a chain of title, it becomes easier to identify who owns part of the property. The chain of title should also help you uncover minor issues or defects that a buyer will expect to be corrected before the sale of the property goes through. Title professionals are responsible for discovering these issues and reducing the risks associated with investing in a property.

What Can Happen if There Is a Discrepancy in the Chain of Title?

There are times when an issue with a chain of title takes place because of an administrative mistake, which could be anything from the paperwork being incorrectly filed to a name being misspelled. These problems are simple to correct in most cases. In the event that the chain of title issue is the result of a serious problem, you might need to speak with your title company or real estate agent. You don’t want to go through with buying a home that has multiple liens attached to it.

How to Fix Problems with the Chain of Title

There are several things you can do if an issue occurs following a title search. You may be able to resolve the issue by getting in touch with previous owners. However, a judgment or lien will likely need to be paid off. If the chain of title problem is difficult to remedy, it may be better to avoid going through with the purchase, which could be necessary to protect your financials.

If a title issue takes place following the close of the sale, you could receive some protection. Buying a title insurance policy protects you against such title defects as liens, another claim of ownership, or the debt a previous owner had. If you want to protect your investment, title insurance might be necessary.

Before you go through with the purchase of a home, it’s highly recommended that you hire a title company and make sure that the chain of title is intact. Any issue with the chain of title could put your ownership claim in jeopardy. If you hire a reputable and experience title professional, they should be able to detect problems with the title before the sale closes.

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