What Is in an Abstract of Title in Real Estate?
An abstract of title is a written history of all the recorded documents and proceedings related to a specific property. When a sale contract is authorized, an attorney or a title company researches all the recorded records related to a property and prepare a written history.
Why an Abstract of Title?
When purchasing real estate, you do not want to be buying a property with liens or other problems you don't know about.
If you're going to buy a home with liens on it, you need to know what they are and how much. You also want to avoid survey problems. You don't want any claims on the property hiding out there—an example being an ex-spouse claiming ownership who is not shown on the title. An abstract of title should show everything recorded at the county courthouse in relation to the property you're buying.
All liens, encumbrances, encroachments, and claims should be on this report. Only things on record at the courthouse will be found, but normally anything not recorded is not as big of a threat, and you can buy title insurance to cover unknown title defects. An attorney or a specialist at searching county records normally does this. An attorney should read the abstract and comment on any problems discovered. You don't want to sign on the dotted line until this is done.
What Kind of Stuff Could Be Found?
An abstract of title can be a pretty thick pile of paper which should be inspected carefully to avoid missing something important.
- Liens: Mechanic and repair liens, or liens for monies borrowed against the property, second mortgage, etc.
- Tax liens: If property taxes are in arrears, there could be tax liens on the property. They take precedence over other liens, and you can lose the property if they're not paid.
- Homeowner association (HOA) liens: If you don't pay your HOA dues, they can put a lien against the property.
- HOA restrictions and covenants: You need to know what you can and cannot do with or on your property, so these are important rules to read, as you're bound by them.
- Surveys and notes: If there are encroachments on your property, they will show up in surveyor notes. An example would be the neighbor building a new fence a foot into your property line.
- Easements: It is common for there to be easements for utilities. Easements are often worded as a certain number of feet along a property line which are reserved for installation and repair of sewer, water lines, etc. You don't want to build a deck over this space, as the easement allows the utility to tear it up to do their work.
As you can see, an abstract of title is an important document to have prepared and to thoroughly read and understand prior to purchasing a property. While it may be tempting to skip this step in your quest for a house, it is worth doing the work now to avoid the risk of owing money to liens or making changes that are forbidden by your HOA restrictions and covenants or by any easements on your property.