One of the worst scenarios a buyer of real estate can find himself in is to discover that after the escrow has closed that he does not have clear title to the property. Although there are measures in place to prevent such occurrences, it still happens, and it happens more frequently than you might think.
As a buyer, it is up to you to protect yourself. You should make sure that your property goes through escrow or a qualified real estate attorney and you should also purchase a policy of title insurance through a reputable title insurance company.
The escrow company should request a preliminary title report from a title company, review the report to find any discrepancies and then submit it to you to review also. You should never depend entirely on the title company, the escrow company, or your lender to be one hundred percent sure that there are no clouds on the title to property that you are buying. You should review the policy and question anything and everything on it.
Don't stop at recent recordings against the property. Do a search that goes back as far as humanly possible. Something may have been recorded against the property many years ago and if the property has not been sold or the title transferred recently, their may be hidden liens.
As a buyer, you want to be sure that the property has clear title. What clear title means is that there is nothing recorded against the property, no mechanics liens, no tax liens, no utility liens, no lis pendens (notice of an impending law suit), no forgotten easements, or any hidden loans.
The best way to protect yourself against anything that may keep you from obtaining a clear title to property is to secure a policy of title insurance. Title Insurance: A policy of insurance protecting the title to real property against loss due to flaws or defects in the chain of title.
Although there are no laws that require title insurance, most lenders will not give a loan unless there is one. This protects the lender, as well as you and the seller. Before issuing a policy of title insurance, the title company does a thorough job researching every aspect of the chain of title.
In most cases, if there is a cloud or a possible problem concerning the title, the title insurance company does it's best to solve the issue and will not allow the title to be transferred if the problem cannot be resolved.
It is in your best interest as a buyer to make sure you are protected. If you don't, it may cost you a lot of money later, and if you ever decide to sell the property, you not be able to sell it as easily as you bought it. Whatever the problems with the title will become your problems and it will be up to you to clean them up and provide the new buyer with a clear title.