In real estate, the chain of title is the timeline of the property’s possession. When a property is sold, the title is transferred, and these transactions comprise the chain. When a buyer accepts a contract to purchase a property, a title company does numerous tasks, including researching the chain of title. The chain of title to any property can be found in the local county recorder’s department. And, there’s no reason you can’t perform your own research to uncover it. The whole public has access to all of the materials. Remember that state legislation governing real estate transfer documentation varies; hence, the chain of title process in one jurisdiction may differ from that in another. This article is a guide to understanding the chain of title, and the comparison between the abstract of title vs chain of title.
What Is a Chain of Title?
The chain of title is the history of a property’s ownership as it goes from one person to another. The property title search itself is frequently referred to as the chain of title.
The chain of title provides a timeline of how a piece of property has changed hands over time. Verifying an unbroken chain of title is critical for obtaining financing for a new house. It also provides you with peace of mind when closing on a home. This is because you won’t have to worry about an unforeseen oversight or a years-old claim muddying the ownership waters with your new home.
What Is Chain of Title in Real Estate?
A deed is a written statement that conveys title (ownership) or interests in real estate to another person. A title is a set of rights in real estate in which a party has a legal or equitable stake. The term “chain of title” refers to a set of legal benefits awarded to a real estate buyer that covers all they may and cannot do with the property as the owner.
In terms of the chain of title, each of these documents works together. A typo in the registration of a deed, for example, could cause serious problems with the chain of title because, in most cases, the person who has a correctly registered act will triumph over the person who claims the property without one.
What Are Chain of Title Documents?
Documents obtained in public land records that identify the current property owner are referred to as chain of title documents. This is due to the fact that each new document registered with each transfer of title creates a new link in a “chain” that links back to the original owner.
These data can be used by title companies, real estate investors, and homebuyers to monitor a property’s past ownership history and find any issues that may damage the property or a future owner’s interest in how they might use the place.
The following are some instances of documents in a chain of title:
- Financial statements
- Records should be transferred.
- Unwilling liens
- Declarations of covenants and restrictions
Financial documents include voluntary lien arrangements such as mortgages and trust deeds. Depending on whether you live in a lien theory or title theory country, the papers will act as a lien on the land or offer the borrower legal title rights to the property until the loan is fully paid.
These papers stay valid in the public domain until a comparable discharge, completion, or deed of reconveyance is proved. That is done after the house has sold or after a borrower has requested an authorized payback letter in order to send their final monthly payment and have the mortgage lien discharged.
Transfer paperwork include deeds and mortgage evaluations. A quitclaim document, for example, distributes or “quits” a prior owner’s interest in the land. Mortgage assignments, on the other hand, transfer the security interest in a mortgage lien from the originator to another party. Mortgage assignments are critical tracking tools that ensure borrowers pay the correct party the correct amount.
Another type of involuntary lien is a mechanic’s lien. When a contractor or subcontractor is not paid for labor or materials for home improvement tasks, this occurs. Until paid off, involuntary liens remain attached to the property and form a title defect.
Involuntary liens include tax liens, utility liens, lis pendens, HOA liens, and other documents indicating that a landowner has failed to pay a governing authority or institution’s required dues, charges, account balances, or assessments.
A technician’s lien is an example of an involuntary lien. This happens when a home renovation contractor or subcontractor is not paid for goods and labor. Involuntary liens remain attached to the land until they are paid off, resulting in a title defect.
Declarations of Covenants and Restrictions bind landowners to refrain from engaging in particular activities or uses on their property. Conditions, Covenants, and Restrictions (CC&Rs), which are common in private community organizations, are the most noteworthy examples.
Such declarations are made in the form of a written document. This specifies the exact boundaries that apply to the property within its jurisdiction. By owning a property listed inside the association, the owner recognizes and agrees to the laws and regulations.
Chain of Title Documents Borrowers and Lenders Must Have
At the closing, a borrower will accept the following papers to establish a chain of title:
A promissory note is a legal contract whereby one person pledges to pay another party a certain sum of money. This is a promissory note to your mortgage lender. It is always part of the mortgage or trust deed.
The mortgage or deed of trust – In some countries, the mortgage is also known as a deed of trust. It is the legal document that establishes a claim on your property. If you fail to meet the terms of your loan arrangement, the lender has the right to seize your home. Furthermore, the lender establishes a security interest in the property on its behalf.
The deed – is a legal document that identifies who owns the title to a property and who has property use rights.
All chain of title documents that affect a person’s ownership rights are the promissory note, mortgage/deed of trust, and deed. These are the documents that title agents and lawyers use to check for any title problems prior to a real estate transaction.
While the deed establishes the chain of title for the property, the promissory note establishes the chain of title for the security interest in the property (or asset) as well as the right to foreclose when coupled with the mortgage.
How Do I Get a Chain of Title?
When you buy a house, a title company does a title search. As part of this procedure, the chain of the title search is checked to validate ownership, find liens, and guarantee that judgments and fines have been paid.
In addition, the title company will search for existing liens on the property and conduct a survey to determine the property’s geographic bounds, which will be recorded in the title. After gathering all of this information, title companies provide a title abstract and a simplified title history. If the abstract includes a clear title, the sale is complete, and you’re nearing the end of the transaction.
How Can You Tell If Your Chain of Title Is Correct?
Before you close on a home, the title agency will do everything possible to verify that there are no questions about the title. However, difficulties can always arise. Any transaction has some level of risk. Insurance is available for your title, just as it is for other large investments such as a car or a yacht.
Charges against property can occur at any time. So, get a chain of title insurance policies from your title company to protect yourself from financial loss if a claim is missed or made in the future. More specifically, title insurance will protect you from court costs and any other financial damage suffered as a result of the claim, based on your policy’s specific conditions. This isn’t to suggest that a lawsuit won’t result in the loss of your property. However, it’s unlikely if you have title insurance.
Problems with the Chain of Title
It is not uncommon for a real estate owner or buyer to find an error in a documented deed. Even little details, such as a misspelled name, might have an effect on the title chain. Unfortunately, completing a real estate deal does not preclude any prospective title concerns. As a result, any such concerns must be addressed as quickly as possible before the buyer loses everything.
The error in the legal description of the deed is a regular occurrence. This is a potential post-closing issue. When a property is transferred for purchase, it is not uncommon for an act to contain an inaccuracy in the description in the documentation.
The issue results in a faulty deed, which has a negative impact on the chain of title. Furthermore, an inaccuracy in the metes and bounds or an error in the lot number could lead to difficulties. When left unchecked, this can be a major issue for those affected; however, there are answers.
Chain of Title Resolution
To address any issues with a deed, the parties may require the services of a real estate lawyer, an agency, and someone to investigate the document and paper chain. It can be difficult to resolve a property dispute when someone else already owns the house or structures.
Real estate lawyers can provide legal aid for deed errors. To amend papers through remedial actions, the property owner may need to consult with a lawyer to determine the source of the issue. Then, in most circumstances, a solution can be applied to swiftly remedy and resolve the problem.
Chain of Title vs Abstract of Title
Before we delve into this topic, let’s explain what an abstract of title is
Abstract of Title In Real Estate
The abstract of title is a simplified description of the property’s full history, focusing on changes in ownership, whether through a direct sale, personal gift, inheritance, foreclosure, or tax sale. This crucial document will also cover any legal difficulties, such as liens, encroachments, encumbrances, easements, and unpaid property taxes, that may interfere with the smooth transfer of property when it is sold.
Chain of Title vs Abstract Of Title
The primary distinction between an abstract of title and a chain of title is that the former is a physical document. An abstract of title, despite being a concise explanation of the property’s history, can be extremely long due to the vast amount of publicly-recorded information and legal documents that go into it.
Purchasing real estate is a significant commitment, and you don’t want to go into these purchases blind. An abstract of title and a chain of title both provide prospective buyers with information about the whole history of a house, building, or parcel of land. Having that information on hand ahead of time can assist you to avoid any legal complications when transferring ownership following a transaction.
Furthermore, your lender will almost certainly require an abstract of title to confirm a clean title before proceeding with your mortgage loan. A broken chain of title might cause a sale to be delayed or even canceled outright.
Chain Of Title FAQs
What is meant by chain ownership?
Chain of ownership refers to the period of time from the day the brand was registered until the present and begins each time a brand is abandoned, if applicable.
Is the abstract the same as the chain of title?
No, the abstract is not the same as the chain of title
What are the three types of titles?
The three types of titles include clean title, lienholder title and electronic title.