What is a Deed, Title, and Title Insurance?

What is a Deed?

The deed is a legal document used to establish proof of ownership. It provides some assurance to the buyer that the seller has the right to sell the property. Usually a third party is hired to conduct a title search in an effort to uncover evidence that the title can be deemed marketable. A marketable title is a title that is clear and free of encumbrances. A marketable title ensures that the title to property is free and clear of any liens and only subject to loan payoff and any taxes owed.

Normally, the seller’s attorney prepares a new deed for closing based on the seller’s old deed. The new deed includes the legal names of both the seller and the buyer and is signed by both parties at closing.

What is Title?

The title to a house is the document that proves that the owner owns it. Without that proof, the house can’t be bought or sold. Title insurance is written by title insurance companies that research the history of the house to see if there are any complications in its ownership. If the title appears to be clean, the insurer writes a policy promising to cover the expenses of correcting any title problems discovered after the sale.

In some cases, though, the research reveals issues that cloud the title. These issues can include an outstanding old mortgage, a previous deed that wasn’t signed or written correctly, unresolved legal debt or levy by a creditor, an old lien placed by a contractor who once did some repair work, and so on. Title companies may refuse to insure such a title to be transferred, so it’s important to know about any potential issues as soon as possible.

Chain of Title

The chain of title establishes a path and proof of ownership on the seller’s part regarding the property being transferred. For the title to be good, the chain must be unbroken. The chain of title is established through the search for successive conveyances of title, starting with the current deed and going back in time 40 to 60 years, usually. The buyer should not agree to close on a broken chain of title.

Abstract of Title

The abstract of title contains a legal description of the property and a summary of any records related to the title. Prior to closing, an attorney reviews the chain of title carefully to ensure it is unbroken and clear. The attorney then updates the abstract of title with what is referred to as an abstract continuation and provides a written certificate of title opinion that the title is clear.

What is Title Insurance?

Title Insurance Policy

The title insurance policy insures the policy owner against financial loss if the title to the real estate is discovered to have defects. The policy only protects the insured against title defects existing at the time the title is transferred. Title insurance is only issued if an attorney verifies that the abstract of title is acceptable and provides a written certificate of title opinion.