Buying a home is a process that can be full of surprises and hurdles. Frankly, it's a nerve-wracking ordeal. If you've found your dream home, you might want to close and make it your own quickly. 

One final hurdle is making sure the house has a clear title. In fact, not to add to your stress, but how can you be confident the people selling you the house actually own it?

That question may sound a little crazy. How could someone sell a house they don't actually own? There are a number of issues that can create an unclear title meaning the owners aren't really supposed to sell the house.

While it can be the final hurdle in the home buying process, it is necessary to make sure you have a clear title to close. Read on to learn more about the importance of a clear title.

WHAT IS A CLEAR TITLE?

A clear title is a property title that has nothing attached to it that would question the ownership of the property.

An unclear title can mean a levy, lien, or someone placing a claim on the property. More on this later.

Sometimes a clear title is also called a clean title, a free and clear title, or a just title.

CLEAR TITLE, HOW IT WORKS

Your goal is to have the title search done by the title company show a clear title. This means the title doesn't have any outstanding financial obligations attached to it, and the owner who's selling has the authority to actually do that.

A cleared title means that the new owners can have the title transferred to their name.

WHY IS A CLEAR TITLE IMPORTANT WHEN BUYING REAL ESTATE?

A clear title matters in a real estate sale because it means that no other person or entity can come along and make a claim on the property.

For sellers, not having a clear title means you can't sell the property. You could opt to transfer the title to a new owner but they wouldn't be able to secure a mortgage without a clear title.

CAN YOU BUY PROPERTY WITHOUT A CLEAR TITLE?

When a property has title issues, it can complicate buying a property. No mortgage lender will loan money on a title that isn't cleared. It's also the reason the lender requires the buyer to pay for mortgage insurance.

This title insurance ensures that if the information on the title should suddenly arise after the sale is complete, the mortgage company is protected. This is considered lender's insurance.

Many homebuyers also opt to secure an owner's policy on the title to protect their interests too.

REASONS FOR AN UNCLEAR TITLE

When a homebuyer is ready to purchase a home and they've secured financing with a mortgage lender, a title company will do a title search.

The title search goes through public records, looking for any potential issues that might indicate unclear the title.

Let's take a closer look at some of those issues.

A Trust

If a property is being sold, especially on behalf of someone deceased, the title search will need to see if the title was placed under a trust.

Since the trust isn't the seller, it wouldn't be a clear title.

Separation

Title issues can arise when one partner sells a property, but the other still has their name on the title.

A couple may have bought a house as a married couple. If they separate and one member of the couple moves out, but they don't divorce, the person who moved out is still on the title.

They would need to be involved in the property sale for the title to clear.

Fraud

There have been instances where a false title was registered on a property. Even if the title was entered into the public record, it was still done fraudulently and wouldn't qualify for a clear title status.

Heirs to the Property

Heirs to a property can also make a title transfer complicated. An heir who had a previous claim on a property may show up suddenly and want to place a claim on their share of the property.

This becomes complicated when there is a death and the heir doesn't have the title transferred.

It might also be that a family member has part ownership through inheritance but never took an active ownership role in the property.

TITLE SEARCHES

When a title company does a title search, they will search the public records for the property. The title search will look for:

• Liens
• Levies
• Encroachments
• Other Issues

If the search doesn't locate any of the following, the property has a clear title. The problem can arise, and it's the reason there's title insurance if the search doesn't locate potential title defects as part of the search.

THE VALUE OF TITLE INSURANCE

As a homebuyer, if you buy a home with a mortgage lender, you'll be required to get title insurance for the lender. This doesn't protect your interests against a bad title; it protects the lender.

If you want to protect your interest from a title defect, you should also seek the owner's title insurance. You can even create an enhanced policy that will help to protect your interests.

MAKE SURE YOU HAVE GOOD TITLE INSURANCE TO ENSURE A CLEAR TITLE

Mortgage lenders and homebuyers get title insurance to protect themselves from a title that suddenly shows up with a defect.

If you have clear title questions or need a quote for title insurance, contact us today.