The chain of title is the timeline of the property’s possession in real estate. The title to a property is passed when it is sold, and these transfers form the chain. When a buyer accepts a contract to buy a property, a title firm performs several responsibilities, including researching the chain of title.
Any property’s chain of title can be located in the local county recorder’s department, and there’s no reason you can’t do your own research to find it. All of the information is available to the general public. Remember that state regulations governing the recording of real estate transfers vary; thus, the chain of title process in one jurisdiction may differ from that in another.
We are here to help you understand the whole concept behind these terms and see how it impacts real estate owners.
What Is a Chain of Title?
By Legal Information Institute:
Chain of title is the historical record of ownership transfers of a specific piece of property. The chain of title is imperative to establishing legal ownership of real estate, vehicles, patents, and other tangible and intangible property. State governments and some private companies have registry systems for titles which keep accurate records of ownership from the original owner onwards. When someone seeks to buy real estate or other property with a title, a title company should be hired to trace the chain of title to ensure the seller has valid ownership. If the seller did not have a valid title, the buyer could be paying for something worthless, and the individual with actual ownership or registration of title keeps the property. Often, individuals must go to court to resolve discrepancies in the chain of title, and many individuals buy title insurance which covers losses from imperfect titles.
Now, let’s delve a little deeper into the definition of chain of title. As previously stated, chain of title refers to the property’s whole ownership history and should always represent continuous, uninterrupted ownership. Other papers, such as a deed or a title, can be used to verify current possession, but the chain of title is crucial if your ownership rights are ever brought into question.
What Is Chain of Title in Real Estate?
A deed is a written statement that transfers title (ownership) or interests in the property to another individual in real estate. A title is a collection of rights in a piece of real estate in which a party may have a legal or equitable interest. The term “bundle of rights” refers to a package of legal advantages granted to a real estate purchase that covers all they may and cannot do with the property as its owner.
Every one of these documents functions together in terms of the chain of title. A typo in the registration of a deed, for instance, could pose significant issues with the chain of the title since, in most situations, the individual who has a correctly registered act will triumph over the person who claims the property without one.
What Are Chain of Ownership Documents?
Chain of ownership documents is paperwork discovered in public land records that identify the current property owner. That’s because each new document registered with each transfer of title establishes a new link in a “chain” that leads back to the first owner.
Title agencies, real estate investors, and homebuyers can employ these records to monitor a property’s previous ownership history and uncover any difficulties that may affect the property or a future owner’s interest in how they might use the place.
The following are examples of the chain of title documents:
- Financial records
- Transfer records
- Involuntary liens
- Covenants and restrictions declarations
Voluntary lien agreements, such as mortgages and trust deeds, are examples of financial documents. The paperwork will operate as a lien on the land or grant the borrower legal title rights to the place until the debt is fully paid, based on whether you reside in a lien theory or title theory jurisdiction.
Until a corresponding discharge, completion, or deed of reconveyance is documented, these papers remain valid in the public information. That is done either after the house has sold or after a borrower has demanded an authorized payoff letter so that they can send their last monthly payment and have the mortgage lien released.
Deeds and mortgage assessments are examples of transfer documents. A deed, such as a quitclaim deed, distributes or “quits” a prior owner’s interest in the land. In contrast, a mortgage assignments transfer a mortgage lien’s security interest from the originator towards another person. Mortgage assignments are essential tracking tools that guarantee borrowers pay the appropriate party the right amount.
A mechanic’s lien is another example of an involuntary lien. That 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 paid off.
Tax liens, utility liens, lis pendens, HOA liens, as well as other documents proving that a landowner has failed to pay a governing authority or institution’s required dues, charges, account balances, or assessments are examples of involuntary liens.
An example of an involuntary lien is a technician’s lien. That occurs when a contractor or subcontractor for home renovations is not compensated for materials and labor. Until they are paid off, involuntary liens remain connected to the land and cause a title defect.
Declarations of Covenants and Restrictions bind a landowner to abstain from certain activities or uses on their land. The most notable cases are conditions, Covenants, and Restrictions (CC&Rs), widespread in private community organizations.
Such declarations are made in the form of a written document that lays out the specific limits that apply to the property within its authority. The owner understands and agrees to the laws and regulations by owning a property identified inside the association.
Chain of Title Documents Necessary for Borrowers and Lenders
A borrower will accept the required documentation at the closure to establish a chain of title:
- The promissory note – a legal document in which one person (the mortgagor or borrower) agrees to pay another party a specific amount of money (the lender or mortgagee). That is essentially a promissory note to your mortgage lender. That is always included with the mortgage or trust deed.
- The mortgage or deed of trust – the mortgage, also known as a deed of trust in some areas, is the legal document that establishes a claim on your property. If you do not meet the loan agreement terms, the lender has the power to seize on your home. In addition, the lender establishes a security interest in the property on behalf of the lender.
- The deed – is a legal document that identifies who owns a property’s title and property use rights.
The promissory note, mortgage/deed of trust, and deed are all chain of title documents that affect a person’s ownership rights. These are the documentation that title agents and lawyers evaluate for possible title flaws before a real estate transaction.
While the deed creates the chain of title for the property, the promissory note, when linked with the mortgage, creates the chain of title for the security interest in the property (or asset) as well as the right for foreclosure.
How to Obtain a Chain of Title?
A title search is completed by a title firm when you buy a home. The chain of the title search is investigated as part of this procedure to confirm ownership, discover liens, and ensure that judgments and fines have been paid.
The title company will also look for existing mortgages on the land and conduct a survey to determine the property’s geographic limits, recorded in the title. After collecting all this data, title firms construct a title abstract and a simplified title history. If the abstract contains a clear title, the sale is complete, and you’re on your way to the end of the deal.
How Do You Know Whether Your Title Chain Is Correct?
Before you close on a property, the title agency will do its utmost to ensure that there are no doubts about the title, but problems can always come up at some point. There is some risk involved with any transaction. Insurance is available for your title, just like it is for several other significant investments – a vehicle, a yacht, etc.
Charges against property can strike at any point, so make sure you obtain a chain of title insurance from your title firm to protect yourself from economic damage if a claim is missed or filed in the future. More precisely, title insurance will protect you from court expenses and any other financial losses incurred as a result of the claim, based on the exact requirements of your policy. Of course, this isn’t to say that a lawsuit won’t result in the loss of your property, but it’s doubtful if you do have title insurance.
Chain of Title Problems
It’s not uncommon for a real estate owner or buyer to discover that even a documented deed has an error. Even the tiniest detail, such as a misspelled name, might have an impact on the title chain. Unfortunately, finishing a real estate transaction does not eliminate any potential title issues. Therefore, it is critical to settle any such concerns as soon as possible before the buyer loses everything.
The mistake in the deed’s legal description is a common blunder. This is a post-closing issue that may arise. It is not uncommon for an act to contain an error in the description in the documents when a property is transferred for purchase.
The problem results in a defective deed, which will have a detrimental influence on the chain of title. In addition, a miscalculation in the metes and bounds or an error in the lot number could cause complications. When left unchecked, this can be a significant problem for individuals concerned; however, there are solutions.
Chain of Title Resolution
The parties involved may need a real estate lawyer, an agency, and someone to investigate the document and paper chain to resolve any mistakes with a deed. When someone else already owns the house or structures, it can be hard to fix a property dispute.
For deed errors, real estate lawyers can provide legal assistance. To change documents through corrective measures, the property owner may need to speak with a lawyer to figure out where the problem is. Then, in most cases, a solution can be used to correct and resolve the issue quickly.
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We’ve covered a lot of aspects when it comes to the chain of title, so don’t worry if you’re feeling overwhelmed. It’s wonderful to have a basic awareness of these principles, but don’t feel like you need to be a specialist. In the end, there are already lots of people who are eager to assist. Start by speaking with a real estate agent if you have any additional questions.
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