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Troy Segal is a senior editor for Bankrate. She edits stories about mortgages and home equity, along with the finer financial points of owning and maintaining a home.
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When you buy a house, it’s important to understand its history – beyond ensuring that the previous owners kept up with maintenance. To ensure you can take uncontested legal ownership of the house and the land on which it sits, you’ll want to make sure the house’s title is clear. A cloud on title — things like back taxes owed or outstanding creditor’s bills— can complicate the transfer between owners, and make purchasing a home difficult.
An abstract of title — basically, a brief history of the property — can help you get all of the info you need to uncover these potential issues. With an abstract of title, you can better understand the history that comes with your potential future home and navigate potential pitfalls in advance.
In essence, the abstract of title is a chronological document that summarizes everything that has happened with the title of the property. It starts from the time the property was first recorded as owned and continues all the way to present day. The document tracks every transaction on the property, starting with the initial grant deed and followed by a record of every instance in which the property title changes hands. It also includes a record of other key details, like liens against the property.
As a result, the abstract gives you evidence that everything is in order with the property you’re considering purchasing, or alerts you to the contrary. It is most commonly used to determine whether or not there is any kind of claim against a house or piece of land prior to making an offer.
Or, if you already have an accepted offer, you should always consider obtaining an abstract of title before closing on a home to ensure you understand its financial and legal history.
The abstract of title can be a fairly robust document, depending on the length and complexity of the property’s history. Assuming this information is available, it will typically include details about the initial deed grant and all previous sales of the property (i.e., transfers). Additionally, it will summarize:
These details included in the abstract can help you become aware of any red flags you might have otherwise missed, prior to purchasing the property. If the abstract reveals a lien, for example, you’ll know to have this debt cleared up by the seller before you close on the house. If you don’t discover this lien, you could end up assuming legal responsibility for it — meaning you would owe the money to the creditor in question.
A title search similarly digs into a property’s history, but it usually only goes back a decade or so. The abstract of title, on the other hand, generally lays out the property’s entire history from the point that it was first recorded as an owned parcel of land.
Real estate experts generally advise homebuyers to request an abstract of title for any home they’re considering purchasing. That said, if you live in a state that has adopted a Torrens titling process (in which property ownership is registered by a certificate of title rather than traditional deeds) , the abstract may be unavailable. In that case, you’ll need to settle for the details you can get your hands on through other channels.
Usually, the process of securing the abstract starts with a title company. These businesses have employees called abstractors. Abstractors train to learn how to understand county records, land surveys, legal filings and other methods of recording property transactions. You can typically pay the title company to either review and deliver the existing abstract, or to create one for you using the information they find.
Armed with this information, you can understand what you’re getting yourself into when you take steps to buy a home. The abstract of title provides peace of mind as to whether you can take uncontested ownership of the property without any financial headaches or additional hoops to jump through. Alternatively, you may be alerted to a problem that’s best solved before you close on the property.
Arrow Right Personal Finance Contributor
Kacie Goff is a personal finance and insurance writer with over seven years of experience covering personal and commercial coverage options. She writes for Bankrate, The Simple Dollar, NextAdvisor, Varo Money, Coverage, Best Credit Cards and more. She's covered a broad range of policy types — including less-talked-about coverages like wrap insurance and E&O — and she specializes in auto, homeowners and life insurance.
