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A Cloud on Your Title Can Delay a Home Closing

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Property Titles

Titles and deeds are a necessary part of owning a home. Whether you are buying or selling, it's essential to understand the process of transferring home ownership and the types of deeds and title insurance. Also, learning the benefits of using a title company can keep a homeowner or buyer free from human error and help decide if it's a resource worth utilizing.

What are titles and deeds?

Some people get confused when dealing with real estate transactions because they do not understand the difference between the deed and the title. The deed is a legal written instrument used to transfer the title of real property from one owner to another.

The deed will contain a complete and accurate description of the property in question, including its location, size and accepted use. The person or entity transferring the deed is called the grantor. The person or entity receiving the deed, and thereby gaining title to the property, is called the grantee.

The title, on the other hand, is a certificate of ownership for the property purchased. Because it is possible that the grantor has no legal right to sell the property and transfer ownership, it is necessary to do a title search.

While the potential buyers can do this for themselves, it is recommended that a title company be secured to do a title search. It can be a complicated matter, but an experienced title company will have the resources, experience and contacts necessary to do a proper search.

The title search tracks the ownership of the property back in time to the original owner. This ensures that there are no encumbrances against the title. Encumbrances can include various types of liens, such as tax or construction liens and unpaid mortgage loans as well as deed restrictions and easements.

A title search will ensure that there are no title defects, also called clouds on the title. A common defect occurs when several people own the title to the property. For one reason or another, one or more of the owners did not sign over their portion of the title at the time of sale; therefore, they still have a claim on the property in question.

Types of deeds

There are several types of deeds when dealing with real estate. A general warranty deed is the most secure type of deed for the buyer. The warranty deed guarantees three things:

• The general warranty deed guarantees that the grantor has not sold the property to anyone else.

• The general warranty deed guarantees that there are no encumbrances against the property, such as tax liens or outstanding loans, other than any already made known to the buyer.

• The general warranty deed specifies the grantor will defend the deed against any claims against the title for any reason.

A special warranty deed is similar to the general warranty deed, although it does not offer as much protection for the buyer. It only guarantees against encumbrances or defects in the title generated during the grantor's possession. It does not guarantee against defects prior to the grantor taking ownership of the property.

A quit claim deed is the type of deed used when a joint owner of the property wishes to terminate his or her claim and transfer that portion of the property to the remaining owner or owners. One of the most common uses for a quit claim deed is during divorce proceedings. A quit claim deed does not offer the grantee any assurances that there are not other encumbrances or defects in the title.

There are other types of special deeds, none of which offer the buyer any assurances against clouds against the title. For example, the tax deed is used when the property is sold to pay back taxes. Some deeds are given in lieu of foreclosure action.

Benefits of a title company

In addition to the resources and contacts necessary to do an accurate title search, title companies also create an abstract, which is a concise summary of all the transactions affecting the property that they uncovered during their search. This may also be called an Abstract of Title.

Furthermore, the results of their investigation or examination may be used to decide whether title insurance will be made available to the grantee or buyer. Title insurance insures the buyer against any claims against the property that have not been discovered or are made after the fact.

Title insurance also protects the buyer against any human error made during the title search. The insurance will pay any legal fees necessary for the buyer to defend the title against the claims.

Types of title insurance

The title company usually issues the title insurance. Depending on the company, there may be many options available for both the seller and the buyer. The buyer and the seller may often split the cost of the title insurance. The payment for the title insurance is a one-time fee.

A basic owner's title policy coverage will usually include assurance of a clear title to the property, a guarantee against incorrect signatures on the final papers, insurance against forgery or fraud and protection against any encumbrances or judgments against the property.

The basic lender's title insurance policy offers protection from any mechanic's liens or any other unknown liens. It also protects against any undocumented access rights to the property or easements. It will ensure against any other unrecorded defects in the title as well.

An extended owner's insurance policy adds protection against possible problems from previous owners, including building permit violations, covenant violations or living trusts. It also protects against future encroachments or forgeries after the title has been signed.

As it can be seen, the complexity of the title process warrants the use of a title insurance company. A professional title agency will save the future homeowners a lot of legwork and headaches when negotiating the sale of a home. Additionally, the title agency can help ensure against potential legal issues after the sale.