Buying a home is a tedious process, no doubt. The key element of the same is a title search, as it is the most significant one. A title search is the process of examining the public records related to any property. It is necessary to verify the property’s ownership history, ensuring there are no legal issues like liens, legal disputes, or more. Doing a title search is also necessary for mortgage lenders, as it impacts their ability to secure collateral against their property.
If such issues arise during the property title search, it will influence your mortgage approval process, delay it, or even get it cancelled. Let’s check more about it.
The Role of Title Searches in Mortgage Lending
Mortgage lenders are always cautious when they approve loans as they use the property for collateral. If you get the loan, the lender can foreclose on your property legally. But if the title of the property is not clear, like having legal claims against the property, it compromises the foreclosure process. Thus, mortgage lenders insist on doing an in-depth title search.
A title search typically uncovers important details such as:
- Ownership History
- Liens
- Easements
- Encumbrances
- Judgments
Such issues complicate the approval process of your mortgage. Let’s see below how they
can impact mortgage approval.
Common Title Issues and Their Impact on Mortgage Approval
Liens on the Property
A common issue that comes up in property title search is liens on the property. It is a legal claim against the property due to unpaid debts like property taxes, previous mortgages, or contractor fees. If you find a lien, the lender can refuse to approve the mortgage unless you get it resolved. This means that the buyer has to work with the seller until the lien is cleared. If not, they cannot sign the deal.
Discrepancies in Ownership
A title search also reveals the seller does not have any clear ownership or there might be some unresolved disputes. For instance, if the property was passed down from a family member without taking proper legal steps, there can be many people who might claim ownership of the property. It raises red flags for lenders, and your mortgage might not be approved. If there are conflicting claims in the title, the time taken to resolve these issues is quite high. So, it is best to conduct a title search.
Easements and Restrictions
Easements allow other people to use a part of their property for specific purposes, like roads or utility lines. Easements are usually not deal-breakers, but they do affect the desirability and value of the property. Some lenders evaluate how easement affects the resale value of the home before the mortgage is approved.
Unpaid Taxes or Utility Bills
If there are any outstanding debts, like unpaid property taxes or utility bills, you are again in trouble. It can result in a lien against your property. No lender will approve a mortgage for this. So, ensure you know about this and make sure that all the debts are settled before you sign on the dotted line, whether buying or selling.
Judgments or Legal Disputes
If a property is undergoing court judgments like divorce settlement or even bankruptcy, it will create problems later. It makes it harder to know who has the right to sell the property. These issues take time to get resolved, preventing mortgage approval, so be sure to look at them.
How to prepare?
To ensure that the title search process goes smoothly and doesn’t delay mortgage approval, buyers should be proactive.
Work with a reputable company that knows how to do title searches and ensure there are no issues, and if there is a problem, it is caught early.
Moreover, when you get the title report, review it carefully and ask any questions if necessary.
If there are any issues, you need to work with the title company and seller to resolve the issues immediately, avoiding delays.
Conclusion
It is mandatory to do a title search to get approval for a mortgage for your property. It will ensure the property you need has a marketable title that is also clear. If there are any issues during title searches, like ownership disputes, unpaid taxes, or more, your mortgage approval can be denied. So, pay attention to this and conduct a title search to ensure the process goes on smoothly.