Without official land records documenting rights to real property, there would be chaos and little assurance that the person selling you a piece of land actually has the right to do so. That’s why the chain of title documents in public land records is closely examined by title professionals before closing on properties today.
Here are some of the documents that create the links in the chain of title, important information found on them, how old liens are resolved in the public record, and how breaks in the chain are fixed.
What is Chain of Title?
Chain of title refers to the record of official ownership of a property or asset, showing the transfer of the property or asset from the original owner to the most current.
What are chain of title documents?
The documents found in public land records establishing the current owner of real property are called chain of title documents. This is because, with each transfer of title, the new document recorded creates a new link in a “chain” leading back to the original owner.
These documents are valuable tools for title agents, real estate investors, and homebuyers to track a property’s historical ownership timeline and reveal any issues that affect the property and a new owner’s interest in how they can use the land.
Types of chain of title documents include:
- Financial Documents
- Transfer Documents
- Involuntary Liens
- Declarations of Covenants and Restrictions
Financial documents include voluntary lien documents like mortgages and deeds of trust. Depending on whether you live in a lien theory or title theory state, the document will act as either a lien on the property or give the lender legal title rights to the property until the loan is paid in full. These documents remain valid in the public record until a corresponding release, satisfaction, or deed of reconveyance is recorded. This is done either after the sale of the home or after a borrower has requested an official payoff letter to send their final monthly payment and release the mortgage lien.
Transfer documents include deeds and mortgage assignments. A deed, like a quitclaim deed, transfers or “quits” the interest that a previous owner had in a property while the mortgage assignment transfers the security interest of a mortgage lien from the originator of the home loan to another party. Mortgage assignments are vital tracking instruments to ensure that borrowers make the right payments to the right party.
Involuntary liens include tax liens, utility liens, lis pendens, HOA liens, and other documents demonstrating that an owner has failed to pay a governing district or association required dues, fees, account balances, or assessments. A mechanic’s lien is another example of an involuntary lien. This happens when a contractor or subcontractor isn’t paid for labor or materials for home improvement projects. Involuntary liens remain attached to the property and create a title defect until it is paid off.
Declarations of Covenants and Restrictions obligate a property owner to refrain from specific activity or use on their property. The most obvious example are the Conditions, Covenants, and Restrictions (CC&Rs) common in private community associations. These declarations are created via a written document outlining the restrictions expressly affecting the properties within its jurisdiction. By owning a property designated within the association, the owner acknowledges and agrees to the rules and regulations.
Other documents that can impact the ownership and use of property include:
- Correction deeds
- Death certificates and beneficiary deeds that transfer ownership upon the death of the current owner
- Affidavits affirming a related fact about the property
- Easements and Rights of way designating certain parts of the land for private and public use
Chain of title documents important to lenders and borrowers:
At the closing, a borrower will sign the following documents that establish chain of title:
- The promissory note – a legal instrument in which one party (the mortgagor or borrower) promises to pay the designated sum of money to another party (the lender or mortgagee). This is basically an IOU to your mortgage lender. This always accompanies the mortgage or deed of trust.
- The mortgage or deed of trust – the word mortgage has root words in Latin and French meaning death pledge. The mortgage, or deed of trust as it’s called in some states, is the legal instrument that creates a lien on your property. This gives the lender the right to foreclose on your property should you not satisfy the terms of the loan agreement. It creates a security interest in the property on behalf of the lender.
- The deed – is another legal instrument showing who has title and land use rights to a property.
The promissory note, the mortgage/deed of trust, and the deed are all chain of title documents that have a significant impact on someone’s property rights. These are the documents that title agents and agent attorneys examine before the real estate transaction for any title defects.
While the deed establishes the chain of title for the real property, the promissory note paired with the mortgage shows the chain of title for the security interest in the property (or asset) and the authority to foreclose against the property.
What type of information is found in chain of title documents?
Some of the information you’re likely to find on these documents, especially a deed, include:
- Name of Grantor – the person who currently owns the property
- Name of Grantee – the person who is to own the property next
- Information describing each party as either a business entity or individual as well as their relationship status and mailing address
- County and state where the property is located
- The full legal description, address, and parcel number
- Document, book, and page number
- Reference to any prior instrument’s book, page, and document number as well as the county it was recorded in
How is real property identified in chain documents?
While your address may be an adequate way to give out directions to friends, it’s not a precise identifier. The legal description can be found on chain of title documents as well as land surveys. These descriptions are exact instructions for measuring and identifying a unique property.
How are liens resolved in the public record?
A lien will stay on a property until it’s paid off. In order to extinguish a lien in the public record, a new instrument must be recorded referencing the lien. A prior document is never erased or removed. This would break the chain of title.
What happens if there is a break in the chain of title?
Title curative work may be needed before you are able to sell your property if there is a title defect caused by a break in chain of title documents. Common issues include:
- A missing mortgage, deed of trust, mortgage assignment, mortgage satisfaction, mortgage release, or deed of reconveyance.
- A legal description error due to an erroneous deed, inconsistent deed descriptions, conflicting survey, or mismarked or misidentified corners.
- Involuntary liens like child support liens, municipal liens, tax liens, or mechanic’s liens that require payoffs and a subsequent release to be recorded.
- Other errors in the public record.
The title curative work may include recording a corrected deed, searching county records for other errors that need to be corrected, gathering proof of payoffs, verifying and contacting appropriate parties to draft the proper releases or satisfactions, and ensuring that they are subsequently recorded.
If you’re a homeowner with a missing chain of title document, you’ll want to make sure that the matter is cleared up before you sell or refinance the property. Contact a title company in your area for help or read more about our Title Curative Services.
Learn more about how title professionals tackle post-closing due diligence by downloading our 2021 State of the Title Industry Report.