Clear Title? You Don’t Have It.

 

Clear title to real estate is a concept that is usually explained incorrectly, leading to confusion and uncertainty.

But….. “It ain’t that complicated.”

Here’s a clear explanation of what your real estate ownership is, what it means to you and to everyone else, and how you should think about it.

If you don’t agree with it, you can always ignore it, but you need to know about it.

This idea is complicated because when you own real property, there is no actual “Title” document issued by a government agency, that you can hold in your hand, like your car title, as proof of ownership.

Here’s what you have instead.

DOCUMENTS OF CLEAR TITLE TO REAL ESTATE

When you own real property, there are two types of documents that determine whether or not you own the real estate.

These two documents also determine the extent and reliability of that ownership.

The first type of document are the documents that refer to the “title,” or ownership of the real estate.  These would include documents filed in the public records such as a Warranty Deed, Deed of Trust, Mortgage, and many more.

The second type of document is the document that insures the title.

There is only one.  It is called the Owner’s Policy of Title Insurance.

Let’s look at each type of document, and then tie them together.

TITLE CONVEYANCE DOCUMENTS

Clear title to real estate cannot be conveyed by someone who does not have clear title himself.

The person signing a Deed to real estate, transferring ownership of that real estate to someone else, can only convey what is owned, and nothing more.

That person is called the Grantor, and the Grantor only owns what he received in his Deed from the previous owner, because that previous owner can only convey what he owns, and so forth.

And, although you hear the term used everywhere, there is really no such thing as “clear title” to real estate.

“Clear title” would indicate that there are no encumbrances on the property and that there are no questions about the current ownership, or any ownership going back to when the first title document was created for this property or any property from which property was separated out.

It is not possible to determine that.

In the United States, with the history of land ownership, considering the early Land Grants, the promoters, the Railroad scams, the crooked Politicians, the illiterate population, the lack of a centralized recording system for much of the time, surveyors measuring property lines by laying chains on the ground, and even honest mistakes, every parcel of land has some cloud on the title, or some defect in the description from the past 240 years.

There is no such thing as “clear title” to real estate.

TITLE INSURANCE DOCUMENTS

So, what do you get when you buy real estate?

What you get, or what you should insist on getting, is called “insurable title.”

That means that the Title Insurance Company has searched the public records for all of the documents of record that affect the title to the property.

And they have concluded that, although they cannot prove that title is clear, and they don’t even go back beyond 25 years so they wouldn’t know anyway, the Title Insurance Company believes that all factors, know and unknown, that might affect ownership of the property being sold by the Seller, are so unlikely to come up and emerge as a title defect, that they are willing to pay the Buyer for any loss that he may suffer as a result of such defect.

That is “insurable title,” and it is a lot different from “clear title.”

The Owner’s Policy of Title Insurance not only does not guarantee that the Buyer is receiving “clear title,” but also does not guarantee that the Buyer is receiving “marketable title,” or that he will be able to sell the property.

The Title Policy is an insurance policy.  It guarantees to reimburse the Buyer for any loss suffered as a result of a title defect.  That’s all.

FALSE “CLEAR TITLE TO REAL ESTATE” DOCUMENTS

There are three documents that are mistakenly referred to as “title” to real estate.

Title Opinion.

Abstract of Title.

Certificate of Title.

Let’s discuss those and understand what they are.

TITLE OPINION

The first document is a Title Opinion.

A Title Opinion is simply the written opinion of someone regarding the condition of the title to a parcel of real estate.

“Condition” means the level of ownership, types of encumbrances, and all other matters that relate to the ownership of the property and the use of the property.

A Title Opinion is usually provided by an Attorney, or by the Title Insurance Company, or by another individual or agency with access to the relevant data and with professional expertise.

It is not a Guarantee, or Warranty, of title.  It is just an opinion.

ABSTRACT OF TITLE

The second document is an Abstract of Title.

An “abstract” is just a summary of something.

In this case, the Abstract of Title summarizes the documents filed in the Real Estate Records of the County where the property is located, such documents that affect the property in question.

It is just a list of all of the documents, such as Deeds, Mortgages, Liens, Judgments, Grants of Easement, Releases, and so forth.

Someone with relevant professional expertise, such as an Attorney, or a Title Insurance Company employee who examines title, can look at an Abstract of Title, and render a Title Opinion as to the condition of title.

But an Abstract of Title is also not a Guarantee, or Warranty, of title.

It is just a list of the documents of record that affect the title to the property.

And it certainly is not a “clear title to real estate.”

CERTIFICATE OF TITLE

The third document is a Certificate of Title.

A Certificate of Title does not exist for real estate, although you often hear it used incorrectly in that way.

An actual Certificate of Title is a document that evidences the ownership of certain property which carries a title with it, such as a vehicle.

Some very expensive watches also use this system to document and track ownership.

And there are probably other instances where a Certificate of Title is used.

But there is no Certificate of Title that insures that you are the owner of real estate.

CONCLUSION

When we started discussing clear title to real estate, I told you that you do not have it, but that I would tell you what you do have.

Well, what you have is a document that is often referred to as a Guarantee of clear title to real estate, and that is an Owner’s Policy of Title Insurance.

However, it also does not guarantee that you have clear title, only that you have ownership of the real estate.

A Title Insurance Policy is just what it says.  It is an insurance policy.

And like all insurance policies, it insures you against loss.

But unlike other insurance policies, it does not insure you against loss caused by events that might happen in the future, like a car accident.

An Owner’s Policy of Title Insurance insures you against a loss caused by events that happened in the past, events that now affect your ownership of the property, reduce its value, or restrict your use.

As I said, the Title Policy does not guarantee that you own the property, it just says that you will be compensated for any loss that you suffer due to a defect in, or a condition of, the title, provided that the defect or condition was not disclosed to you in the Policy.

The Policy is very careful to not state that you have clear title to the real estate.

In other words, title is not clear, but it is insurable.

It’s the best we can do.

And it works.

An aside here: in my opinion, the most successful real estate investor will be the one with the most information.

I don’t mean data, I don’t mean someone else’s plan, or program, or opinion.

I mean information.  And you get that by reading, reading constantly if necessary.

Information is learning and information is knowledge.  I recommend two other posts here, “Knowledge Compounding,” and “How To Learn Everything.”

I think you’ll benefit from the few minutes it takes to read them.

RELATED ARTICLES

Title By Adverse Possession, The Myth

The Due-On-Sale Clause Is Real.

Loan Approval? Yeah, sure. Whatever.

A Living Trust Is Not A Trust.

DISCLAIMER:  I am an Attorney licensed to practice in TexasNorth CarolinaVirginia, and the District of Columbia.  But I am not your Attorney.  I would be honored if I were, but I am not.  Reading this Article does not create an attorney-client relationship between us.  Internet content should not be used as a substitute for the advice of a competent Attorney admitted or authorized to practice law in your state or jurisdiction.

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