Owning property is legally complex. With most other purchases, you can simply go to the store, hand over some cash, get a receipt and no one will ever question whether you truly own the item in question. Buying a home is a lot different.
When you buy a home, you’ll need to go through the process of taking title, which means that you become the legal owner of the home.
Let’s take a look at what a house title is and what home buyers need to know about it.
A house title represents all of the legal rights surrounding the ownership and use of a residential property. A property title isn’t a document; it’s a concept used to establish a property owner’s “bundle of rights.”
The bundle of rights encompasses all of the rights that come with being a property owner. It means you have the right to:
These rights may be limited by the law, easements or liens on the property or homeowners association (HOA) rules. For example, though you typically have the right to limit who can enter your property, a legal search warrant presented by a law enforcement officer can override this right. Also, while you might enjoy painting the exterior of your home to look like a lava lamp, your HOA might not permit this.
When you buy a house, there are a few different ways you can opt to hold title. We’ll get more into that in a minute.
Chain of title refers to the history of ownership of a home.
When a home is in the process of being sold, its chain of title will be thoroughly scrutinized to ensure that the seller actually has the legal right to sell the home and that the buyer will be able to take possession of the home without any encumbrances that could jeopardize their ownership or cost a lot of money to remedy. This is called a title search.
Typically, the entity that performs this search during a home purchase transaction is a title company. They’ll comb through public records to ensure that the title is clear.
A home’s title tells us who legally owns it. It also tells us who has a claim to the property.
You might think that the person selling the home is the one who legally owns it, and that when they sell it to you, you’ll be the legal owner. But it’s not always that simple.
Say, for example, somewhere along the chain of title on a home, the property was sold when it was supposed to be willed to some long-lost heir. Unaware of this, you buy the home. Then a few years later, this long-lost heir comes a-knockin’ at your door – or rather, their door.
If that heir can prove that they’re the rightful owner of the property, you could lose your home.
More commonly, a homeowner will, knowingly or not, try to sell a home that has some type of lien on it. Maybe they have property taxes they never paid or a contractor performed some work on the house and was never paid for the job. If the sale goes through, the new owner becomes legally responsible for those debts.
A title search will usually catch these things and prevent the sale from moving forward until any issues are resolved and the title is clear. If a problem with the title comes to light after you’ve purchased the home, title insurance could protect you from any related financial loss.
If you’re relying on title insurance as your protection, you’ll have to purchase an owner’s title policy in addition to the lender’s title policy required by the mortgage company that protects its interest in your home from an investment standpoint. Without the owner’s policy, your mortgage company will be covered, but you won’t be able to rely on it for a new home.
It’s also important to understand the way you hold title on your property. Co-owners, liens and easements can all limit what you’re able to do as an individual with your property.