What is an abstract of title in real estate?

When you buy a home, one of the most important steps is confirming that the property’s ownership history is accurate and free of any issue. This is called title abstracting, and the process protects you from any problems that may arise in the future.

During title abstracting, public records, past transactions, and any legal filings are reviewed to gain a summarization of a property’s legal history. It all goes toward making sure nothing will compromise your ownership rights. Because this is such a vital and important step in the homebuying process, it’s important for you to understand how it’s done, who does it, and to get answers to common questions.

What is an abstract of title?

An abstract of title in real estate is a collection of legal documents that summarizes a property’s complete legal history. The record runs from its first owner, when the property was deeded, to the time you purchase it.

It includes every ownership transfer, any liens, or legal claims on the property. This is done to uncover any liens, encumbrances, or claims that might hinder your ownership rights to the property. It’s vital to ensure that you have a clear title and don’t inherit someone else’s problems.

What does an abstract of title include?

As you can imagine, there is a wide range of legal documents that can relate to real estate throughout its history. An abstract of title includes them all, along with a certification so you can rest assured that all potential issues have been brought to light.

Here’s a list of key items an abstract of title investigates and includes:

• Outstanding mortgages: Any mortgage that hasn’t been paid off could become the buyer’s problem if not resolved.
• Property deeds: Every transfer of ownership over time. Deeds are the backbone of ownership history.
• Homeowners association dues: Any unpaid HOA dues can create a lien on the property.
• Liens: Any liens, often due to unpaid debts like contractor work or taxes.
• Encumbrances: Legal or financial claims that can limit how the property can be used result in encumbrances.
• Conveyances: Records of how ownership has been transferred, whether through sale, inheritance, or other means.
• Easements: Easements give others the right to use part of the property.
• Encroachments: Encroachments occur when a structure crosses property boundaries and can lead to disputes.
• Unpaid property taxes and tax sales: Delinquent taxes can result in serious issues, including tax liens or loss of the property.
• Restrictive covenants: Restrictive covenants can limit what owners can do with their property.
• Wills: Wills help confirm legal ownership if the property is transferred through inheritance.

Having this information before you buy a property gives you a complete picture of what you are getting and helps you avoid any costly legal surprises. It also gives lenders confidence in the property as a safe investment. This is why most lenders require this document for your loan approval.

What is a title abstractor?

A title abstractor is the person who is responsible for creating your abstract of title. This is usually a professional researcher or real estate attorney.

They dig into the property’s public records, reviewing past transactions and examining legal filings tied to the property. They also do a deep title search, going back as far as records allow them to. When they’re satisfied they’ve uncovered everything and the property can be transferred, they compile a detailed title report.

Why is an abstract of title important?

An abstract of title is vital to you as a buyer because it gives you a verified, comprehensive record of a property’s past. It confirms that the property is clear of liens, encumbrances, or legal disputes that could hinder your ownership rights. This is helpful whether you’re buying a property for personal use or as an investment property.

Without an abstract of title, you could face serious and costly surprises. For instance, imagine finding out after you bought a property that an unpaid contractor had a lien on the property for thousands of dollars. Or an undisclosed heir claimed ownership. Or a long-forgotten easement determined how your new property could be used.

For these, and many other reasons, a thorough abstract of title protects your investment. Uncovering any issues before buying the home allows you, or the seller, to clear them up before the deal moves forward. If you don’t obtain an abstract of title when purchasing a property, your lender may require you to buy title insurance to protect them and you from any concerns down the road.

Abstract of title vs. title search: What’s the difference?

On first look, an abstract of title and a title search might seem like the same thing. And although they both involve reviewing public records to verify ownership of a property and find any potential problems, there are some important differences between the two.

A title search is usually more limited in its review, encompassing recent property records. It focuses on the right of the current owner to sell the property and identifying obvious issues, such as liens or claims.

An abstract of title, by comparison, is much more comprehensive. It covers the entire ownership history of a property, going back decades or more, depending on the number of records available.

Because a title search is not as comprehensive as an abstract of title, lenders will often require title insurance. This insurance protects both the lender, and you if hidden issues crop up post-sale.

FAQ

Here are answers to some common questions buyers have about abstracts of title.

How much does an abstract of title cost?

Abstracts of title take a lot of research and work, so they are not cheap. Updating an existing abstract of title typically costs between $200 and $400, while creating a new one can cost $1,000 or more. Many buyers turn to their title company to get one.

What’s the difference between a title examiner and a title abstractor?

A title abstractor gathers data from public records and creates a property abstract. A title examiner reviews that information for any potential issues, like liens or encumbrances.

Is the title abstract the same as the deed?

No, a deed is a legal document that transfers ownership of a property, while an abstract of title is a comprehensive record of the property’s entire ownership history. The title to a property is an abstract concept of ownership.

Who holds the abstract of title?

A title abstractor typically prepares an abstract of title, which is then held by the property owner or lender.

The bottom line: An abstract of title gives you peace of mind when buying a home

Buying a home is one of the biggest financial decisions you are likely to make, so it’s critical to fully understand a property’s ownership history and any outstanding issues it might have. You want to verify the property deed and uncover any liens, encumbrances, or other potential costly problems. This is why getting either an abstract of title or a title search is so important in any real estate transaction.

If you’re ready to buy a home, you can start the process by applying for a mortgage through Rocket Mortgage.