There’s a lot of worry involved in homebuying. Will the house pass inspection? Will my financing go through? Is the neighborhood safe? Is this the best school district for my kids? Doing the right kind of research or due diligence before making an offer is important to avoid surprises, especially for first time homebuyers. A title search is one of the ways for a buyer to protect themselves from others claiming a right to their property. While a homeowner’s title insurance policy will ensure any recorded liens and errors in the public record are addressed, there is, however, another type of search that is just as important, the municipal lien search for unrecorded debt and property issues.
What’s a title search?
A title search on a house or piece of land will establish:
- Legal ownership (or who currently holds the title to the property)
- Outstanding claims or recorded liens on the property
A title search is typically performed by a title company or real estate law firm on behalf of the lender (if the purchase of the property is being financed) and the buyer. This is required for financed deals so that the lender's interest is insured. Title insurance is one of the many types of insurance homebuyers need to know. There is one title insurance policy for the lender and one for the homebuyer.
If you want to get started on researching a property’s title history, a buyer or investor has a few options:
- Search the public record online. Many counties will keep land records online. You can search by owner name and instrument or document type like mortgage, deed, release of lien, etc.
- Search the public record in person or request a service like Fee Favor to retrieve documents. Some counties do not provide this information online, so visiting the county recorder in person may be the only option.
- Get to know a title agent. Your Realtor or real estate agent has most likely built a relationship with a local title company they trust. If you’re a first time homebuyer, be sure to reach out to the title company that will be doing your closing to see if they can answer any questions you have. You can also research and choose another title company to handle your closing if you prefer. The title search will be a part of the closing costs that a buyer can negotiate with a seller.
Searching the public record for property liens
We recommend hiring a title agent or real estate attorney to do a final property search to confirm chain of title and that the property is free from defects. Additionally, obtaining title insurance from a professional title company or real estate law firm means that should anything be missed, you’ll be covered. If you miss something in your own search, you may end up losing your house, your down payment, and any other mortgage payments you’ve made without any legal recourse to get anything back.
If you would like to do a preliminary title search on your own, here are a few tips to keep in mind.
- Find the property’s county.
- Search the county’s property appraiser’s website and note the current property owner name(s), parcel number, and legal description.
- Check the county recorder’s public record for any liens, judgements, or lis pendens attached to the property under the owner’s name.
- Check for any other liens filed against the current owner which may affect all property held by that individual. In some states, a lien for code violations, unpaid taxes, or other issues on a single property may be applied to all property held by the violator.
- In order to establish chain of title, note the specific transfers of title from the current to all previous owners. Be sure that the legal description and parcel number match the one you found in the property appraiser’s website. Confirm that all liens, mortgages, judgements, etc in the names of previous owners have a subsequent release or satisfaction recorded.
This type of search is time consuming and you may need to go to the courthouse in person to access all the documents, but it is free.
Additionally, this type of search will only tell you about recorded liens. As crazy or unfair as it may sound, some states have statutes allowing local municipalities to hold property liens out of sight of the public record in the form of open code violations, open permits with fees, and outstanding utility bills. Many buyers may falsely believe that these issues would be the responsibility of the individual who incurred the costs, but oftentimes, these fees and fines will stay attached to the property. Should they go undiscovered prior to closing, the new owner will be forced to settle the issue with the municipality.
What’s the difference between recorded and unrecorded liens?
A recorded lien is any lien that is found in the public record. This includes mortgages, mechanic’s liens, or tax liens. A title search performed by a title company or real estate law firm determines the vested owner, the liens or other judgements on the property, the loans on the property and the property taxes due.
An unrecorded lien is an involuntary debt placed against the property that will not be shown in the public record. Fines and fees can accrue on a daily basis resulting in hundreds if not thousands and on rare occasions even millions of dollars attached to the property.
Examples of Unrecorded Liens
- Outstanding charges from the city for nuisance abatement services like overgrown weeds, pest control, or boarding up of an abandoned property.
- Code violations like debris, overgrown lawns, and structural issues.
- Outstanding utility bills.
- Unresolved fees for inspections, certifications, and open building permits.
- Special assessments for various property and neighborhood improvements like sewer hook up, road paving, and sidewalk repairs.
Unrecorded liens aren’t an issue in every state, so be sure to reach out to a real estate agent or title agent in your area.
Does title insurance protect against unrecorded property liens?
A homeowner’s title insurance policy doesn’t usually cover any unrecorded debt. A Municipal Lien Search will find any unrecorded debt or issues that a traditional title search could miss. You can perform a municipal lien search yourself or request that this search is added as a requirement of the closing contract.
A municipal lien search prior to closing protects the buyer from any hidden issues that the title search won’t reveal. A code violation that hasn’t yet been filed as an official lien or months of unpaid utility bills that have yet to be recorded due to a backlog at the municipality. This search will help to resolve any issues before closing that the buyer would be responsible for correcting.
Although this isn’t an explicit responsibility for title agent or real estate attorney, failure to obtain this search may still result in a claim of negligence. Even if these issue remain an exception, confused and angry homebuyers may assume that these issues will be resolved by their title insurance policy. Be sure that buyers and real estate agents are aware of these potential issues if they affect properties in the area you do business.