Take the 2-minute tour ×
Personal Finance & Money Stack Exchange is a question and answer site for people who want to be financially literate. It's 100% free, no registration required.

I am looking into buying my first piece of real property.

Basically my question is "why do title search companies even exist?". Who uses them? And why?

Are they doing something special apart from going to the local authoritative body and performing a title search on a parcel id number?

A) Am I paying them just so they can do my due dilligence and then stamp some big ole company seal on the documents they provided me with? So I feel more confident in the documentation provided?

B) Do they exist solely to service large banks and corporations who control thousands of property deeds worldwide and cannot afford to pay a staffer in every single city on earth just to perform title searches?

C) Or might they exist for some other reason that I am entirely unaware of?

I am not trying to be facetious. I am genuinely curious. As somebody who has never looked into the process of acquiring land in the past, they seem to be redundant as a service. I can't imagine how so many of them are still in business.


Take Detroit, MI for example.

There is a website called https://www.waynecountylandrecords.com (which is run by the city of Detroit) where I can go and pay them $6 for 15 minutes of access to perform as many property title searches as I can manage in 15 minutes. It costs $2 per page to print (download) documents from that database, up to a maximum of $10 per document.

That, or I could physically visit the land records office listed on their website and do the same thing in person. Although it would cost me a bit more money I believe.


So again my question is why would I spend more money with a title search company as opposed to performing the title search myself?

Is it simply because "performing a title search" requires the ability to circumnavigate a bunch of legal mumbo jumbo or even know where to perform the title search in the first place? I am quite distraught over the (what seem to me to be) unnessary complications involved in purchasing a property.

I'll be frank. I create and maintain extremely large computer databases for a living. So the idea of paying somebody $25+ to basically extract data from a database and then pass it on to me seems asinine.

The sole fact that a city like Detroit Michigan is placing a pay wall of $6 to even perform an online title search seems ludicrous to me as well. Seeing as it's in their best interest to give potential investors full and complete knowledge of any liens on the literally thousands of properties they are in need of having purchased by tax-paying individuals. For what? A few $100k in annual revenue for the City? But, I digress.

I do understand that it's literally a thousand+ year old system, so I carry on in search of knowledge.

If I absolutely have to go through a title search company to receive the full benefits of a title search, please explain why below.

Thank you for reading.

share|improve this question

2 Answers 2

Title agencies perform several things:

  1. Research the title for defects. You may not know what you're looking at, unless you're a real-estate professional, but some titles have strings attached to them (like, conditions for resale, usage, changes, etc).

  2. Research title issues (like misrepresentation of ownership, misrepresentation of the actual property titled, misrepresentation of conditions). Again, not being a professional in the domain, you might not understand the text you're looking at.

  3. Research liens. Those are usually have to be recorded (i.e.: the title company won't necessarily find a lien if it wasn't recorded with the county).

  4. Cover your a$$. And the bank's. They provide title insurance that guarantees your money back if they missed something they were supposed to find. The title insurance is usually required for a mortgaged transaction.

While I understand why you would think you can do it, most people cannot. Even if they think they can - they cannot. In many areas this research cannot be done online, for example in California - you have to go to the county recorder office to look things up (for legal reasons, in CA counties are not allowed to provide access to certain information without verification of who's accessing). It may be worth your while to pay someone to do it, even if you can do it yourself, because your time is more valuable.

Also, keep in mind that while you may trust your abilities - your bank won't. So you may be able to do your own due diligence - but the bank needs to do its own.

Specifically to Detroit - the city is bankrupt. Every $100K counts for them. I'm surprised they only charge $6 per search, but that is probably limited by the State law.

share|improve this answer
    
Even as a real estate professional, there are many aspects to a title search that can be easily missed. If you do the work yourself, you're accountable. –  sdgenxr May 19 at 15:16
    
@littleadv, thank you for the detailed response. Can you provide any insight as to how point number 3 would work in practice? Do title search companies search every single bank in the country or something? And how would a lien be enforceable if it was never submit to county record within (what I imagine must exist) some statute of limitations? Also my gripe that they are charging at all stems from the fact that they would probably have many more properties in the hands of tax paying owners if they lowered the bar to entry required to assume ownership of a property (by making searches free 247) –  islandlubber64 May 19 at 22:36
    
@islandlubber64 You'll have to talk to a lawyer licensed in your State about the lien question, I really wouldn't know. –  littleadv May 20 at 3:45

Basically what @littleadv said, but let me amplify what I think is the most important point.

As he/she says, one thing you're paying them for is their expertise. If the title on record at the county office had a legal flaw in it, would you recognize it? In a way your question is like asking, Why should I go to a doctor when I could just make my own medicine out of herbs I grow in my garden and treat myself? Maybe you could. But the doctor and the pharmacist have years of training on how to do this right. You probably don't. Is it possible for you to learn everything you need to do it right? Sure. But do you want to spend the time to study all that for something that you will do -- buy a house -- maybe once every ten years? Will you remember it all next time or have to learn it all over?

But really most important is, title companies offer insurance in case the title turns out to be flawed. That, to me, is the big reason why I would use a title company even if I was paying cash and there was no bank involved to insist on it. If there's some legal flaw in the title and it turns out that someone else has a claim to my house, and I lose in court, I would be out about $100,000. Your house might be costing you much more. That's a huge risk to take. Paying the couple of hundred dollars for insurance against that risk seems well worth it to me.

And by the way, I don't think the "due diligence" is easy. It's NOT just a matter of making sure a title is really on file at the court house and has the proper stamp on it. It's all about, Does someone else have a legal claim to this property? Like, maybe three owners ago someone forged a signature on a deed, so the sale is fraudulent, and now the person who was defrauded or his heirs discover the issue and claim the property. Or maybe the previous owner failed to pay a contractor who did repairs on the house, and now he goes to court and gets a lien on the property. It's unlikely that you have the expertise to recognize a forged document. You almost surely have no way to recognize a forged signature of someone you never met on an otherwise valid-looking document. And you'd have to do a lot of research to find every contractor who ever worked on the house and insure none of them have a claim. Etc.

share|improve this answer
    
+1 For the insurance which might be the best way of looking at things. You are buying insurance to cover you if something is wrong with the title. –  rob May 21 at 13:08

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.