How the Title Search Process Affects Your Home Loan

by Karen Lawson
CMR Columnist

You've probably heard of title insurance and title companies, but maybe you're wondering what they are and what they do. A title company may act as the closing (or escrow) agent for closing your home loan. But what exactly is a title search, and why is it important?

Understanding Title Search and Your Home Loan

When you buy a home, the mortgage documents will reflect your name as the homeowner, but your ownership is subject to repayment of your home mortgage or refinancing loan. When you open an escrow, a title company searches public records to identify unpaid debts secured by the property. All such debts, or liens, must be paid prior to closing your mortgage loan.

Who's Who in a Title Report

Your escrow company will order a preliminary title report, or "prelim," which shows all liens recorded against the property you're buying. Typically, the seller's mortgage will appear on the initial title search. However, unexpected liens can cause problems for the title search and your home loan.

These liens may include:
  • Unpaid property tax liens or assessments
  • IRS or state tax liens
  • Mechanic's liens (court awards for unpaid services)
  • Legal encumbrances resulting from court actions
Before you can obtain a home loan, or complete home mortgage refinancing, all existing liens against the property must be removed. The "seniority" of liens is determined by when the liens were recorded. If all liens are not cleared before your mortgage is recorded, such liens could jeopardize the title to your property.

Who Pays for Clearing the Title?

The seller's existing mortgage(s) will be paid off at closing. If there are other unpaid liens, the seller is usually liable for paying to clear these items. However, if the seller is unable or unwilling to do so, you as the buyer may be asked to pay them. Your escrow and/or title officer will guide you in resolving title problems.

About the Author

Karen Lawson, MA, is a freelance writer with more than fifteen years of experience in mortgage lending.

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