If you’re a home buyer or seller in the Beacon Hill real estate market, you know that every home has a title and a deed. But why do we have both, and why do we need title companies and title insurance? The answers are important, so read on.
What’s the difference between a deed and a title?
In strictly legal terms, the deed is the physical document that proves who owns the Beacon Hill property, while the title is term that refers to who holds the rights of ownership.
- “Sarah picked up a copy of the deed from her real estate agent’s office after work,” but
- “Jeff transferred the title to Sarah last Monday.”
What are “rights of ownership”?
When you hold the title to a piece of Beacon Hill real estate, you are granted three key rights of ownership:
Right of Possession: You own the Beacon Hill house, and other parties (eg. the county if you don’t pay your taxes, or the lender if you don’t pay your mortgage) must go through approved legal means to take it away from you.
Right of Exclusive Use: You, and you alone, decide who uses the Beacon Hill property (lives in the home) and how the property is used. Of course, zoning rules, the law, and homeowner association regulations still apply, depending on where the property is located.
Right of Conveyance: You have the right to transfer ownership of the property to another party, usually by selling it. (“Convey” means “to move”, or move ownership to another person.)
The deed then is simply the document that describes the title and who gets to exercise ownership rights.
Why do titles get so complicated? It’s just a piece of paper, right?
Every property has a history! Even new homes are built on lots that were subdivided from larger tracts of land. Therefore, there is a potential for a problem — also known as “clouds” or “defects” — with the title for every property in the United States, Boston, Beacon Hill real estate transaction with a mortgage, (and is typically done even if there is not a mortgage) and your real estate agent will recommend a good title company to do it.
What does a title inspector look for?
- Clerical errors. A misplaced decimal point on a property survey or an unchecked box on a mortgage document can throw the ownership status of your home or lot into question.
- Unknown liens. A lien is a way for a mortgage company, construction company, or government body to guarantee payment by claiming some of the cash when a property is sold. The title can’t change hands until liens are cleared, usually by paying off whoever placed the lien. Sometimes, the lien holder simply neglected to remove the lien even after payment was made.
- Missing or invalid ownership. Sometimes records of ownership are created for people who can’t legally own property — illegal immigrants and minors are two examples. On the other side, deeds can sometimes be transferred to the wrong person, for instance if there were missing or unknown heirs to an estate.
- Easements. While liens claim a financial stake in a Beacon Hill property, an easement is the physical right to the property, or a portion of the property by a third party. Easements can also be placed that say what use the owner can make of the property, for example a conservation easement. Errors in recording easements are common, because they must not only be agreed upon between the property owner and the third party, they must also be recorded with local governing bodies.
- Potential boundary disputes. Your surveyor placed the property line at the fence, however the neighbor has a different surveyor that says the property line is actually five feet past the fence! The title search will help uncover and resolve any discrepancies in the physical definition of the property.
These are a few of the common title issues we see here in Boston. There are many more that may be hidden for decades until a good title inspector roots them out. On the other hand, there may be no issues with the title – but you don’t know until you check. Knowledge is good if you’re a Beacon Hill home buyer; it means that issues can be cleared up before you take ownership of the home. If title issues linger, you may be in the unfortunate situation of having a contractor demand money for work performed before you even bought the home, or having an heir come out of the woodwork who says the house is actually theirs!
Do I have to have the title inspected?
In Massachusetts, a title search is required by the mortgage lender. If a buyer is paying in cash, they might be able to skip the title search — also called title inspection — but it’s not common or recommended.
However, before financing is even secured, as part the real estate transaction the seller must complete a “property disclosure statement” (expect in a few exempt cases). This statement not only alerts the buyer to any potential issue with the major components of the house and property, it also requires the seller to disclose known title problems.
Not every statement in the seller’s disclosures are a potential problem, of course. If there are certain easements on the property (maybe the power company has the right to access the property to maintain a line), they don’t necessarily need to be removed for the sale to move forward. However, liens should be addressed and any existing title holders will need to approve of the sale.
Generally, a property disclosure is not adequate to discover title flaws because no matter how honest the seller is, there may be problems they didn’t know about.
The title inspector will check county and state records, sometimes going back fifty years or more, to create a history of the property. They will look for chain of ownership, tax history, and unpaid liens. They will also ensure that easements were recorded correctly and that all title holders are legal and accounted for.
Do I also need title insurance?
Some lenders require title insurance, and it’s easy to get from your title company once the title is cleared. Title insurance simply guarantees that the title is clear, and states that the title company will deal with any title problems that come up that they didn’t find.
Not sure what title company to use? Check with your Boston real estate agent!