House Title: What You Need To Know

Owning property is legally complex. With most other purchases, you can simply go to the store, hand over some cash, get a receipt and no one will ever question whether you truly own the item in question. Buying a home is a lot different.

When you buy a home, you’ll need to go through the process of taking title, which means that you become the legal owner of the home. Explore the details to understand what a house title is before moving forward.

House Title, Defined

A house title represents all of the legal rights surrounding the ownership and use of a residential property. A property title isn’t a document; it’s a concept used to establish a property owner’s “bundle of rights.”

Bundle Of Rights

The bundle of rights encompasses all of the rights that come with being a property owner. It means you have the right to:

• Possess the property (Right of Possession)
• Use the property (Right of Control)
• Enjoy the property however you wish (Right of Enjoyment)
• Sell, rent or transfer ownership (Right of Disposition)
• Limit who can enter the property (Right of Exclusion)

These rights may be limited by the laws, easements or liens on the property or homeowners association (HOA) rules. While you generally have the right to use your property as you wish, your HOA might restrict certain activities. For example, if you want to install a unique front yard sculpture or paint your house a different color, your HOA might have guidelines that prohibit such additions or updates.

Chain Of Title

Chain of title refers to the history of ownership of a home. When a home is in the process of being sold, its chain of title will be thoroughly scrutinized to ensure that the seller actually has the legal right to sell the home and that the buyer will be able to take possession of the home without any encumbrances that could jeopardize their ownership or cost a lot of money to remedy. This is called a title search.

Typically, a title company performs this search during a home purchase transaction. They comb through public records to ensure that the title is clear.

Why Is The House Title Important?

A home’s title tells us who legally owns it and who has a claim to the property. You might think that the person selling the home legally owns it and that you'll be the legal owner when they sell it to you. But it’s not always that simple.

Identifying Potential Title Issues

For example, let’s say somewhere along the chain of title on a home, the property was sold when it was supposed to be willed to some long-lost heir. Unaware of this, you buy the home. Then a few years later, this long-lost heir comes knocking at your door – or rather, their door. If that heir can prove that they’re the rightful owner of the property, you could lose your home.

More commonly, a homeowner will, knowingly or not, try to sell a home that has some type of lien on it. Maybe they have property taxes they never paid or a contractor performed some work on the house and was never paid for the job. If the sale goes through, the new owner becomes legally responsible for those debts.

Conducting A Title Search

A title search will usually catch these things and prevent the sale from moving forward until any issues are resolved and the title is clear. If a problem with the title comes to light after you’ve purchased the home, title insurance could protect you from any related financial loss.

Purchasing Title Insurance

If you’re relying on title insurance as your protection, you’ll have to purchase an owner’s title policy in addition to the lender’s title policy required by the mortgage company that protects its interest in your home from an investment standpoint. Without the owner’s policy, your mortgage company will be covered, but you won’t be able to rely on it for a new home.

House Title Vs. Deed

Remember that a house title refers to the legal ownership of a property. It’s not a document. If you hold title on a property, you own it.

A property deed is the legal document that officially transfers ownership of the property from its previous owner to its new one.

When you buy a house, the seller (also known as the grantor) will sign this document, deeding the house to you (the grantee). The deed will then be filed with the appropriate government office for your county, such as the clerk or the register of deeds.

Essentially, the deed is the physical document that proves you hold title to your home.

Primary Methods For Holding House Title

There are a few different ways homeowners can hold title to a property. These different methods can change how ownership interest is divided among co-owners and who that interest will be passed onto when an owner dies.

Below are some of the most common ways a homeowner can hold title and how they typically work. However, the types of ownership available to you and the specifics of those types can vary depending on your state’s laws.

Sole Ownership

This method for holding title is pretty straightforward. A sole owner holds title to a property in their name only; they don’t share ownership interest with anyone else.

This type of ownership is most often utilized by single homeowners or married individuals who want to be the sole owner of the property. If you’re a married person buying a house without your spouse, your spouse may need to formally relinquish their right to that property by signing a quitclaim deed or otherwise waiving their spousal rights at the closing table.

When a sole owner dies, who takes over ownership of the home depends on whether they had a will. If they did, the property will be passed to the heirs designated in the will. If they didn’t have a will, the home would be transferred according to state law.

Community Property

Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin are what’s known as community property states.

In these states, any property obtained by one spouse during a marriage is considered to belong equally to both spouses. When it comes to homeownership, this means that both spouses hold title on the home as community property. Depending on individual state laws, this type of ownership may or may not include what’s known as the “right of survivorship.”

Right of survivorship means that when one owner dies, their ownership interest is automatically transferred to the living owner(s) without having to go through probate. For example, if a husband and wife own their home together and the husband dies, the wife will automatically become the sole owner of the home.

Without the right of survivorship, both spouses are free to will their share in the property to whomever they choose.

Joint Tenancy

Joint tenancy allows two or more co-owners to share equal, undivided interest in a property.

This means that each co-owner has an equal right to the entire property, with ownership interest typically split up evenly. For example, two co-owners would both have a 50% interest in the property.

When co-owners hold title this way, they’re granted right of survivorship. This means your share can’t be willed to others and will automatically pass to your co-owner(s) upon your death. However, depending on your state’s laws, one joint tenant may be able to unilaterally sever the joint tenancy agreement and convert it to a tenancy in common agreement, which allows property to be willed to others. This type of ownership is popular with married couples.

Tenancy In Common

Tenancy in common allows two or more people to co-own a property, with ownership interests split up however they choose. For example, one co-owner could own a 75% interest in the property while the other owns 25%. However, all co-owners have an equal right to possess the entire property. This type of ownership is common among unmarried couples.

With tenancy in common, each owner has a right to sell, give away or otherwise do as they wish with their ownership interest. This includes the right to will it to whomever they choose, as tenancy in common doesn’t include right of survivorship.

Tenancy By Entirety

This type of ownership is only available to married couples and isn’t an option in every state. With tenancy by entirety, a married couple is viewed as a single legal entity for the purposes of property ownership.

Tenancy by entirety includes right to survivorship. Each spouse needs the other’s permission before they can sell, transfer or encumber the property or their interest in it.

Living Trust

Some homeowners may decide the best way to handle the ownership of their property is to put it into a living trust. This type of ownership means that your property is held in a trust by you, for you; you’re both the trustee and the beneficiary.

When you die, the assets in your trust will be distributed according to your instructions without having to go through probate. It’s worth noting that when you initially close on the property or refinance it, many lenders, including Rocket Mortgage^®, will only lend to people and not legal entities. The property cannot be closed in a trust.

Less Common Ways To Hold Title

The methods of holding the title mentioned above pertain to individuals. But it’s also possible for other entities to hold the title as well.

• Corporation ownership: Corporation ownership occurs when a company owns real estate. The company is owned by shareholders but is legally regarded as being its own entity.
• Partnership owners: A partnership, or an association of individuals who are co-owners of a for-profit business, can also hold title to real estate. This type of title can also occur with a limited partnership, in which one of the partners handles the majority of business decisions without input from the limited partners.

Again, Rocket Mortgage only lends to people and not any kind of company or partnership.

How To Protect Your House Title

The best way to avoid title issues is to have a professional conduct a title search on the property you plan on purchasing and to insure yourself against future title claims with title insurance.

If you’re purchasing your home with a mortgage, your lender will require a title search and a lender’s title insurance policy, which protects them financially against any claims against your home’s title. You’ll also need an owner’s title policy to protect your interests. The buyer typically pays these costs as part of their closing costs.

Additionally, it’s often customary for the seller to cover the cost of the buyer’s title insurance policy.

The Bottom Line

When you buy a home, you want to buy one that doesn’t come with costly baggage. Understanding who truly owns your home and protecting yourself with title insurance can give you peace of mind and help you avoid a financially ruinous title disaster.

If you’re ready to buy a home, start your mortgage application online today with Rocket Mortgage. You can also call us at (833) 326-6018.