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Beth Braverman is an award-winning freelance journalist and content producer, writing mostly about personal finance, parenting and careers.
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From making sure your financial documents are in order to packing up boxes, there are many moving parts when closing on a home. One thing homebuyers usually don’t give much thought to is their home’s title — but they should. It shows who legally owns the property, which is critical not just to you but also to future buyers.
Sure, it’s not as exciting as designing your new kitchen or going furniture shopping, but a home’s title is important to avoid potential headaches later on. You might not realize there are several options, and the best one depends on many factors, such as your family’s circumstances, your reasons for buying a home and what you want to happen to it in the event of your death.
Here’s what you need to know about house titles, and how to title your new home.
A house title denotes ownership rights: It is the bundle of rights that dictates who has legal or equitable interest in the property. It also details the limitations on ownership. For example, depending on how the title is held, you may or may not be able to sell the home yourself, without permission from anyone else.
While a house title is conceptual, a house deed is a physical, written document declaring a person’s legal ownership of a property. In real estate, the deed records a property’s title and the transfer of that title between two parties or individuals. Your county or municipal clerk’s office typically keeps a copy of deeds for all properties in its jurisdiction.
When you purchase a home, a title company conducts a title search to ensure that the seller is the sole owner of the home and no one else has any legal claim to or against the property. Lenders often require borrowers to purchase lender’s title insurance as well, which protects the lender against loss for the loan amount if someone has a claim against the property.
If you don’t have clear title to your home, someone else might be able to argue that they’re the legal owner of the property and that the person who sold it to you didn’t have the right to do so. This can lead to major legal complications and headaches that you definitely want to avoid.
How title is held for a property is an important consideration. Home title rules vary from state to state, so your options might be limited depending on your state’s laws.
“These concepts go back to common law in England, but each state adopts their own version of them,” says Jordan Lulich, a real estate attorney and licensed title agent with Lulich & Attorneys in Vero Beach, Florida.
Here are some of the most common title options, and the situations in which each would be applicable:
A property with sole ownership has its title under the name of one person (the sole owner, literally).
Joint tenancy involves two or more individuals purchasing a property together. Each person owns an equal portion of the property.
Under tenancy in common, multiple people can hold the home title and own the property together, but they’re able to sell their interest or pass it on to beneficiaries of their choosing after they pass away.
Some states allow married couples to own a property via this title method, which gives both spouses full ownership of the property. This is most common in community property states. Creditors can’t lay claim to the property if they’re pursuing a debt that’s only owed by one of the spouses.
A trust is a legal vehicle that allows you (the trustee) to pass assets, including property, to your beneficiary after your death without going through probate.
The manner in which your house title is held has many legal ramifications, from how the property can be sold or taken by debt collectors to how your estate manages the property after your death.
If you hold your home title in sole ownership but live in it with a partner, for example, you might expect that your partner will be able to stay in the home if you die. In reality, the executor of your estate might be able to sell the home without getting your partner’s input. If you’d held the title as joint tenants with a right of survivorship, your partner would get full ownership of the home and be able to continue living there.
In addition, if you owe debts, collectors can try to make you sell your home to settle them. If you held your title as tenants by entirety, your home would be safe from debt collection, assuming your partner did not also have significant debts.
Each method of holding a title has different pros and cons. You can choose the way in which you hold your title based on your goals, such as making sure your partner can continue living in the home in the event of your death or choosing exactly how the proceeds from the sale of the home are used.
Homebuyers are strongly encouraged (but usually not required) to purchase additional owner’s title insurance, which protects their investment if there are legal challenges to ownership down the road.
This can also protect against title fraud or title theft. Title fraud, in which a scammer transfers the title of a home into their own name, can happen to anyone. It is more common in popular vacation states such as Florida and California, due to their high volume of vacant homes and properties.
If your life circumstances change — say, if you get married and you and your spouse will live together in a home you already own — the process to change your home title is relatively simple and inexpensive. The paperwork can be tricky, however, so enlist the help of a title professional and a real estate attorney to make sure it’s done correctly.
When you purchase a home, it’s important to consider the legal implications of how the title is held. Your home title not only determines who owns the property, but also how it’s passed on in the event of death or financial difficulty. Make sure you understand the different ways to hold a title and the ramifications of each before deciding what is right for your family and lifestyle.
Arrow Right Personal Finance Expert Contributor
Beth Braverman is an award-winning freelance journalist and content producer, writing mostly about personal finance, parenting and careers.
