Ownership of land can be passed from one person to another in several ways. A landowner can be granted full ownership for a pre-determined period of time (e.g., his own or someone else’s lifetime); he/she can be given the land with certain conditions (e.g., no gambling can ever take place on the land, or, it must always be used for church purposes); or he/she can be granted full ownership for an indefinite amount of time, complete with the right to pass the land on to his/her heirs.
Ownership is evidenced through a document called a title, and for every piece of property there should be a consistent chain of title showing who owned the land at all times. Before your lender will extend credit for your mortgage, he/she is going to want to know the history of the title to your property. It may be that there are gaps in the chain – a period where no title seems to have existed for the land. If that’s the case, someone else could come along later, produce a valid title, and claim the land you now “own.” Or, there may be a condition on the land that makes it illegal for you to have your home there. Or, the property owner thirty years ago may have defaulted on his taxes so that the government really owns the land you’re trying to buy. Obviously, you, and your lender, need to know up front exactly what you’re getting when you buy this land – if you really can buy it.
To this end, once you have a loan commitment, your lender will want a title search from a title company. The title company will research public records to trace the title back 40-60 years (considered the “root” of the title). If your title is marketable – it has no serious defects, doesn’t expose you as the buyer to the possibility of future litigation, and can be transferred at your discretion – the title company will produce a certificate of title which certifies the results of the search. This does not guarantee your ownership, however; problems could still surface later.
To protect yourself against past problems that may surface sometime in the future, you will purchase a title insurance policy and a lender title insurance policy at your closing. These policies will protect you and the lender from:
- Defects that could be found in public records
- Forged documents
- Incompetent grantors (e.g., a past title wasn’t valid because the person who conveyed wasn’t legally competent to do so)
- Incorrect marital statements
- Improperly delivered deeds
Title insurance does not protect you against defects that were known at the time of your purchase and were listed in the policy.