No, we’re not talking about restraining your job title here–Chain of Title is a term used by closing and title companies that refers to the previous owners of a property and the transfers of ownership over time.
Specifically, the chain of title over the last 12-24 months is usually the most critical period a title examiner is going to look at to determine if the title is “clear”.
This means the title company will want to check the documentation of any ownership transfers in this time period to verify that they are authentic and within legal requirements.
So why should you care about the chain of title? Simple: if you’re buying a home you want to make sure no one else has ownership rights to that home. If someone did have ownership rights, they could potentially sue you as the new owner for damages or even try to take the house away from you. Either situation would be pretty chaotic.
The reason why this issue is important in today’s real estate market is because a lot of companies, investors, and sellers have been involved in fraudulent and illegal activities when buying or selling property. This includes situations where investors buy properties from the owners for pennies on the dollar, and then re-sell to another investor and exchange money “under the table” which is not documented in the transaction.
People are obviously being investigated and even being sent to jail for some of these practices, and because of that title companies are making sure that they are not involved in any suspect transfers of ownership.
The chain of title becomes even more important in short sale and foreclosure situations. Timing is critical when an owner is trying to avoid foreclosure, and if there is a hole in the documentation where title was transferred before a foreclosure occurs it could cause trouble for a new owner who thinks they own the property legally, when in reality the bank might be able to take possession of the property.
The bottom line is that your title company should make you aware of any questionable title transfers and proceed with caution if there are doubts to whether you will have full ownership rights to the property after you buy the home.