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 prepares a written chronology.
What Abstract of Title Means
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 ex-spouse claiming ownership who is not shown on the title, for example. 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 items 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. A real estate attorney or a specialist at searching county records normally looks up the title. An attorney should then read the abstract and comment on any problems discovered. You don't want to sign a contract until the title has been fully examined.
What an Abstract of Title Could Contain
An abstract of title can be a pretty thick pile of paper. The info on it can include:
- Liens: Mechanic and repair liens, or liens for monies borrowed against the property, second mortgage, etc., should be listed if they exist.
- 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.
- 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 is 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 its 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 – to avoid the risk of owing money to liens or making changes that are forbidden by your HOA or by another claimant to the property who could block your sale.