What Is An Abstract Of Title In Real Estate?

When you’re in the process of buying a home, you’ll likely want to do everything possible to learn about the property before the sale is complete. To uncover the full legal history of the property you’re purchasing, you’ll want to request an abstract of title.

Let’s take a close look at what an abstract of title is in real estate, why it’s important for home buyers and the types of information it includes.

What Is An Abstract Of Title?

Also called a title abstract, an abstract of title is a collection of legal documents that details a property’s complete legal history from its first record of ownership to present day. An abstract of title details every title transfer and previous owner as well as any liens or other legal actions taken against the property.

What Is A Lien?

A lien is any legal claim against a property that can be used as collateral. For example, if a homeowner fails to pay their property taxes, the local government can attach a tax lien to the property. This allows the local authorities to foreclose on the home to recoup the money lost due to the unpaid property taxes.

Before you purchase a home, it’s critical to know if such liens exist on the property so that you don’t find yourself paying the previous owner’s debts.

Who Holds The Abstract Of Title?

Before you get the abstract of title for the house you’re buying, it will be prepared by an abstractor of title. The abstractor is typically an attorney or someone who holds an abstractor license, depending on the state. The abstractor of title has the important role of researching the property’s history, adding the relevant information to the abstract of title and then certifying that the information in the abstract is true and complete.

Why Is An Abstract Of Title Important?

An abstract of title is critical for those looking to buy a property, whether the purchase be for residential or investment purposes, because it shows that the property has a clear title. A clear title verifies that the property is free of any liens or claims. Purchasing a property with a clear title is important because it ensures you won’t encounter any challenges to your ownership of the property after the sale is complete.

What Does An Abstract Of Title Include?

Depending on the property’s history, an abstract of title can be lengthy. It will provide details on every recorded transaction and legal document associated with the property. For example, an abstract of title can include:

• Outstanding mortgages
• Property deeds
• Homeowners association dues
• Liens
• Encumbrances
• Conveyances
• Easements
• Encroachments
• Unpaid property taxes and tax sales
• Restrictive covenants
• Wills

This knowledge is important to have before you close on a home. When you get an abstract of title, you can know with complete certainty that the information presented is accurate and complete, giving you peace of mind about the property you’re buying.

Who Needs An Abstract Of Title?

Anyone purchasing a property should obtain an abstract of title before the transaction is finalized. To get an abstract of title, many home buyers turn to their title company. Most often, the title company can review an existing abstract or create a new one. Typical costs for updating a title abstract range from $200 – $400, while the fee to create a new one can exceed $1,000.

What Happens If You Don’t Get An Abstract Of Title?

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 legal issues caused by title defects. If you’re feeling unsure about whether you need an abstract of title, it’s best to consult an attorney for advice on your situation.

Abstract Of Title Vs. Title Search

A title search is another method of researching a property’s legal history. The main difference between a title search and a title abstract is this: An abstract of title covers the property’s entire history starting with the initial deed grant, but a title search typically only covers the property’s history over the last few decades.

Abstract Of Title Vs. Torrens

If a property has no abstract of title that’s available, it’s likely because the property is a “Torrens” property. The term Torrens refers to a 19th-century method of transferring the title to a piece of land. The concept was first introduced by an Australian statesman, Sir Robert Torrens. Many U.S. states once used the Torrens system to record property transfers, but today, only a few continue to use it, and only certain instances.

The Bottom Line

An abstract of title is a physical document summarizing the complete legal history of a property, from title transfers to liens and encumbrances. Obtaining an abstract of title before you purchase a property is a critical step for home buyers because it guarantees they won’t face any legal problems in connection with the property after buying it.

Another important step in the home buying process is to secure financing. If you’re ready to buy a house or think you might be in the not-too-distant future, you can start your mortgage application today with the Home Loan Experts at Rocket Mortgage^®.