CHAPTER 1: Overview of Title

What is Title?

“Title” means that a person (or entity) has the right of ownership and possession of land. Proof of title to land is usually shown by a deed filed in real estate records in the county where the land is located. “Clear title” means that there is no competing claim of ownership or interest in the property— that is, no other person or entity can claim a superior right of ownership or financial interest in the property.

Why Should a Landowner Care about Title?

Title is an important issue for property owners regardless of whether property is purchased or gifted. First, without clear title, real estate cannot be easily transferred to a new owner. Second, most (if not all), conventional lenders that use the property as security for a loan will require a person or entity to obtain title insurance and have clear title to the property before making the loan. Third, by building on property without clear title, a person is exposing itself to the risk that someone else with an interest in the property could come along and make a claim to the property. If a person, for example, built a house on a lot and it turned out that someone else also had an ownership interest in the property, the other owner could force the nonprofit to go to court, force a sale of the property, and make a claim for a share of the proceeds from the sale.

While obtaining clear title is very important, many title problems are complex and difficult to cure. As a result, when title problems arise, they can pose a major obstacle for persons attempting to obtain land for redevelopment projects.

What is the Benefit of Title Insurance?

What is Recording Title?

Recording title is the process of filing a deed in the real estate records that shows evidence of ownership or other rights to land. A deed to property must be filed in the county in which the property is located. Deeds operate usually on a first-come, first-served basis: a deed that is filed before another deed takes priority over the later-filed deed. Failure to record the deed immediately after a sale can result in loss of ownership of the land. For example, if a deed for property is not filed promptly, the seller could resell the property to a second purchaser who does not know about the prior sale. If the second purchaser files his deed before the first purchaser, the second purchaser could then claim superior ownership to the land.

What is Clouded Title?

Clouded title occurs when more than one person has a claim to a piece of land. This can happen, for example, when a person dies without a will and there are many heirs, some of whom cannot be located. Other times, this can happen when a deed filed by a prior owner does not contain an accurate description of the property leading to confusion as to who owns the land. Another common example is when a utility easement runs across a lot that prohibits development on the lot. Other common “clouds” on title include:

• Forged documents

• Divorce agreements

• Liens

• Conflicting wills

• Clerical mistakes in public records

• Confusion due to the similarity of names

• Mineral rights

Purchasing title insurance is important for several reasons. First, issues affecting the title of property may date back many years, and some issues might not appear in any public records. Even the most careful search of public records may not discover every problem. Second, most financial lenders will require a title insurance policy before lending money for the purchase or improvement of a piece of property. Third, without title insurance, a landowner could lose the property if someone else successfully asserts a claim against the property—and the landowner could still be held responsible for paying the mortgage on the property. Finally, without title insurance, a landowner could be accountable for prior liens, judgments, and back taxes, even without knowledge of their existence.

There are two types of title insurance: a mortgagee policy that protects the lender and an owner’s policy that protects the landowner. Owner’s title insurance usually protects the landowner for the amount of real estate purchase and pays for legal fees involved in defending a claim against the owner’s title. Title insurance does not guarantee that a person will continue to have the right to possess or use property, but it does guarantee that a title company will defend the landowner from lawsuits by other persons claiming an interest in the property and that the title company will reimburse the non-profit for any financial loss incurred as a result of claims covered by the title policy.

Before a title company will issue a title insurance policy, the company will first research the title to determine whether there are any defects to the title, including defects from any past sales or transfers of the property. The title company will review public records, maps, tax history, and other documents. The title company will then issue a title commitment that will list any defects in title that the title policy will not cover.

What is a Title Commitment?

A Title Commitment is a promise from a title insurance company to issue a title insurance policy on a piece of property. A Title Commitment is organized into parts, called Schedules. Schedule A contains basic information about the proposed transaction, such as the amount of insurance coverage and the name of the insured, the current record owner, and the legal description. Schedule B is important to review because it contains a list of preprinted exceptions and other exceptions that the title policy will not cover. These exceptions may include items such as restrictive covenants, tax liens, easements, mineral rights, and right-of-way provisions. Restrictive covenants may limit the type of development that is permissible on the property, so this section should be carefully reviewed.

Schedule C is the most important part of the Title Commitment. This section contains the requirements that must be met before the title insurance policy will be issued. For example, this section will list all liens that must be paid at closing and any title defects such as an Abstract of Judgment, federal tax liens, or pending lawsuits. A landowner needs to pay very close attention to the requirements listed in Schedule C. These problems or defects must be corrected before a title insurance policy will be issued.

Finally, Schedule D is the disclosure part of the title commitment which contains information about the ownership of the title insurance underwriter and title premium disbursement.