A step that takes place once your offer is approved is the title search. Before the title can be transferred, the seller must provide evidence of marketable or merchantable title, one that is readily salable in the locality.
This step is needed to uncover any possible problems or missing links with title (legal ownership) to the property. Title searches are generally set up by the buyer’s Realtor, lawyer, or your loan officer. Marketable title is not perfect title. It is not necessarily that the title be free of all liens. In the case of a sale with mortgage assumption, the buyer has bargained for and will accept the sellers’ title with the present mortgage as a lien on the title.
The evidence of marketable title through title examination is usually provided by a title company. The records searched include public record of deeds, mortgages, long-term leases, options, installment agreements, easement, platted subdivisions, judgment entered, deaths, marriages, bankruptcy filings, mechanics liens, zoning ordinances, real or personal property taxes, miscellaneous assessment for improvements, mortgage releases, and lis pendens (liens pending) notices.
The search of the given piece of real estate will establish a chain of title, which must be unbroken for the title to be good and, therefore marketable. It involves tracing the successive conveyances of title starting with the current deed and going back usually an appropriate time (typically 40 to 60 years) quite often researching back to the original title – the last instance of government ownership. If there is a missing link in the chain of title, it is called a gap. A missing link in the chain of title creates uncertainty as to the path of ownership and proof thereof. These missing links could be the result of failing to record a deed, fraud, an unknown heir, a secret spouse, a faulty land survey on the property, or a dispute between parties. Any of these uncertainties is of sufficient concern to a buyer to threaten the marketability of title.
If these missing links can be bridged by obtaining proper title clearing documents, the transaction may safely occur. If not the sale should not close. If no problems or missing links are found in the search, the title company issues you title insurance. This is for your protection. Title insurance guarantees that the property you buy is as it is stated in recorded deeds, surveys, and other documents. You may pay a one-time title insurance premium when you buy the house. Then you do not have to pay another premium unless you refinance your mortgage.