This week we delve in to a topic we get asked often. "What is title and do I need it?"
First and foremost, title is essentially what conveys clear ownership of your new home to you, and you only. It states that nobody else owns a stake in the ownership. Whomever owned it prior has been compensated properly, and no longer can claim any stake in interest.
Have you ever bought a used car? Each state varies, but in New Jersey in particular, you are given a purple and white title. This one page document conveys ownership from one individual to another, states how much was paid in consideration for the car, and also states if there was a lien on the car, that it was satisfied before being transferred. Ownership of a house is kind of similar.
In NJ, the buyers attorney contacts a title company when the inspection phase is complete, and orders the title work. First thing the title company does is search in the county clerks office for any land records pertaining to your house. They search back 60 years of ownership to find what's called a chain of title. That is ownership history, uninterrupted, for the span of 60 years. If there is a break in the chain, that has to be investigated. If there is a grey area of ownership, that is a "cloud". Lately, due to COVID making the court houses less accessible, some attorneys or title companys are requesting "back title", meaning they are using essentially the previous title policy (we will talk about that next) as a point of reference, and searching from there to current. So, if the home was sold 10 years ago, and the current owner has a title policy, your title company will really focus on the most recent 10 years instead.
While the title search happens, they also search the names of the owners on title. If there are judgements against the owner, these must be satisfied before the seller can sell the property. The title company will not insure the title otherwise.
Once all judgements are satisfied (if there are any), and the chain of title is valid, the title company insures the title of your property so that nobody can claim ownership other than you. If they do, the title company's insurance will cover your losses.
One thing to remember, is title insurance is essentially "insuring the dirt", and this differs from a homeowners insurance policy, which insures the structure and contents.
That's all for now, and if you have any questions about title, or anything else real estate, you know who to ask.
Until next Wednesday,
Chris & Nikki