What is Certificate of Title?
Why do you need a certificate of title?
What are the essential elements you should know!
In this article, I will break down the notion of Certificate of Title so you know all there is to know about it!
Keep reading as I have gathered exactly the information that you need!
Let’s see what certificates of title represent and why they are so important!
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Let’s get started!
What Is Certificate of Title
A certificate of title refers to an official document that evidence’s a person or company ownership in a real estate property or a movable property such as a car, boat, business, or other.
Typically, you’ll need an original certificate of title when you are dealing with a type of property that effectively has title such as real estate properties (house, land, or other) or movable properties (generally a vehicle).
That’s why you may hear phrases like a certificate of title real estate, land certificate of title, or car certificate of title.
Certificate of Title Content
The information that you’ll find in a title certificate is generally:
- Name of the owner (title holder)
- Description of the property
- Information of lienholders
The objective of the certificate is to legally establish or prove the owner of a property.
As a result, the three main pieces of information that you’ll find in the document are the name and identification of the owner, description of the property, and the list of any lienholder or third parties having a recorded lien or encumbrance on the property.
The owner can be an individual or a company.
The property can be any type of property that bears title (most often, real estate properties and vehicles).
Certificate of Title Definition
According to Investopedia, a certificate of title is defined as:
A certificate of title is an official state or municipal-issued document that identifies the owner(s) of personal or real property. A certificate of title provides documentary evidence of the right of ownership. Usually it applies to real estate, though it also may pertain to a business, boat, or vehicle, among other things.
As you can see from this definition, a certificate of title is a:
- That identifies the owner
- Of real property or movable property
In most cases though, when referring to a certificate relating to title, we are referring to the proof of ownership of a real estate property.
Transfer Certificate of Title
An owner of a property has the right to sell the property (alienation rights).
As such, as part of the purchasing process, the buyer along with the buyer’s lenders or creditors will want to ensure that they are acquiring a valid title free and clear from other claims or encumbrances.
To prove that the seller owns the property in question, the seller must produce a certificate of title property.
In essence, when a property is sold, the certificate of title is transferred from the property seller to the property buyer.
When the property title is clear, the transfer (or sale) goes through without any problem.
However, if the title search reveals that the property is not free from liens or other debt, then further investigations may need to be performed to understand why and how it can affect the purchase.
Buyers want to purchase property where the title is free and clear from any liens or encumbrances (we say that the title needs to be clear).
A clear title means that there are no creditors or lenders who may assert a possible claim against the property for having borrowed money from the seller.
Certificate of Title Search
When a title insurance company performs a title search and issues a “certificate of title”, the certification also contains their opinion on the validity of the owner’s title.
In other words, for a title insurance company to issue a property certificate of title, it will perform a thorough investigation on the current owner’s title to ensure that effectively the owner has a good title on the property.
Typically, the title search involves looking into public records and databases in order to determine the property owner’s right of ownership or find evidence that the owner has a valid property title.
When a proper title search is done, you’ll have the assurance that the title of the property is “clear” and there may be no outstanding back taxes, outstanding sums owed by the seller to its creditors, or the property is not given to someone as collateral.
Certificate of Title Insurance
Even though you may consult public records to determine whether a property is subject to encumbrances, liens, or easements, it may not possible to have a 100% guarantee that the title of a property is clear.
In such cases, there may be encumbrances or liens that have not been recorded, perhaps the information was recorded but contained a spelling mistake so it was not identified, or there may have even been acts of fraud where an actual encumbrance was not properly recorded.
In any event, to protect yourself against instances where the title search reveals that the title is clear but it may actually not be, you can get yourself title insurance to protect yourself against possible claims.
In some cases, your mortgage lender or bank may require that you acquire title insurance if there is doubt about the title or as a measure to prevent losses should a seller creditor show up one day with a claim against the buyer.
Certificate of Title vs Deed
What is the difference between a certificate of title and a deed?
Although both documents may be necessary for the closing of a real estate transaction or the sale of a property, they are not necessarily the same thing.
A certificate of title refers to an “opinion” or “verification status” performed by title companies in order to verify whether or not the title of a property is clear.
To issue a certificate, title companies will look into public records, databases, and consult various records to get a better understanding of the background of the property and whether or not the title is encumbered or not.
On the other hand, a deed is a document that is signed to transfer a property from one person to another.
The deed is a document that is generally signed by the seller and the buyer where the parties outline the terms of the transaction, identify their names, describe the property, and include other aspects of the deal.
The person transferring the property is the grantor and the person receiving the property is the grantee.
Certificate of Title vs Title
Is a certificate of title the same as title?
Although a certificate of title and title relate to similar things, they can be slightly nuanced.
In real estate, a certificate of title is the evidence or proof that the seller’s title is free and clear from encumbrances or it lists the type of liens and encumbrances registered against it.
A title, generally speaking, refers to the ownership of property or an asset that can be real property, personal property, or intangible property like trademarks and intellectual property.
Titles can be separated into two categories, personal property titles or real property titles.
Personal property title refers to all assets that may bear a title but are not real (like land or real estate) and can include corporeal property (merchandise, jewelry, equipment etc) along with incorporeal property (copyright, patents, trademarks, etc).
Real property title are rights in real estate or land properties.
As you can see, a certificate of title refers to whether “title” is free or encumbered (having cloud on property) and the title refers to the ownership of real or personal property.
Certificate of Title Example
What is an example of a certificate of title to better illustrate the topic?
Most often, you’ll deal with certificates of title when purchasing a car or a home.
Example 1: Car Purchase
When you purchase a car, you’ll need a certificate of title to prove that the title of the vehicle is clear.
This is important as you don’t want to purchase a vehicle where the previous seller had recorded a lien on the vehicle for having borrowed money from the seller.
If the seller does not pay off his or her creditor, the third party creditor’s claim against the property will remain registered against the property.
To ensure that your car title is free and clear, you need to ensure that you get your certificate of title to validate that you will not have to deal with the seller’s creditors or third parties having a claim on the vehicle.
Example 2: Home Purchase
Another example of a certificate of title in action is when you are buying a real estate property.
A certificate of title is an opinion issued by a title company further to a deep and thorough investigation of public records and documents registered against the property.
The objective of a title search is to ensure that all possible creditors are identified and paid off by the seller before the property title is transferred.
The title “certificate” allows the buyer and the buyer’s creditor to have comfort that nobody else can assert a claim against the property.
Certificates of Title Takeaways
So there you have it folks!
What is a certificate of title?
The certificate of title is the official evidence of ownership of property, such as a house, land, car, truck, motorcycle, boat, utility trailer, mobile home, or something similar.
In the context of the transfer of property from one person to another, a certificate of title is used to ensure that the seller’s title is free and clear of any liens.
The house certificate of title or automobile certificate of title will often contain the name of the owner, owner’s address, features of the property, and any information relating to the property encumbrances to the extent found.
In the context of real estate transactions, when the certificate of title is issued by a title company, the certificate will also contain the title company’s opinion relating to the title held by the seller.
It’s very important that you have a good understanding of a certificate of title, its purpose, and why it is used so you are better prepared to deal with the purchase and sale of a property.
I hope this article provided you with a simple definition of a certificate of title and gave you the information you need to deal with it.
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Define Certificate of Title (Overview)
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