If you are in the process of buying a property or already own one, you may have heard the term "certificate of title," and might be wondering what it is and how it differs from a title deed. In this article, we discuss everything you need to know about title certificates.

Title Certificate Explained

A certificate of title is a legal document that is issued by a state or municipality. It confirms the legal owner or owners of a property. The document serves as proof of an owner's right of ownership and usually refers to property or real estate. However, it may also refer to other significant assets, such as businesses, motor vehicles, or boats.

The buyer becomes the new owner and the holder of its title once they have made their last payment to a creditor. After that, the buyer receives a title certificate in their name from a municipal or governing body.

Identification Information

The individual who is accountable for the estate or property is listed on the title certificate until that individual chooses to sell it to someone else. There are no details regarding the loan or the previous owner on the certificate.

A certificate of title contains identification information that allows people to see the details of the property or real estate and the individual who has the title.

However, the estate may be encumbered, which means that a third party may have prospective claims to it. This includes mortgages held on the property. If this applies, such encumbrances are listed on the certificate of title.

With regard to non-real estate certificates, details such as the license plate or vehicle identification number can be found on the vehicle's certificate of title. The address of a property or house is listed on a property certificate of title, as well as the address and name of the person who owns it.

Public Records

Public records are vital for all parties concerned to have an adequate assessment of ownership since it offers public and legal notification regarding an individual's interest in a given property.

These public records are vital for all parties concerned to have an adequate assessment of ownership since it offers public and legal notification regarding an individual's interest in a given property.

Parties can use this public document trail to defend their legal rights against claims from third parties, as the seller transfers the title certificate to the buyer once it has been cleared.

Property Ownership

While certificates of title provide information about any debt that is owed, it is important to remember that a certificate of title does not serve as a guarantee that a person's land or house is free of encumbrances, liens, or easements. This is because most encumbrances and liens are documented in public records, while others are not.

Furthermore, some property owners provide insufficient information on the estate's encumbrances. This is why title insurance firms insist on issuing a certificate of title to the legitimate property owner before that individual borrows money with the property as collateral.

When Property Is Sold

When a property is sold, the seller must assure the buyer of a clear title free of all liens. The owner can provide proof of ownership by presenting a certificate of title.

Before a property's ownership can be transferred, it must be free of debts. The title must be clear, which means that no creditors can claim ownership as a result of granting credit to the seller. Because there may be liens or debts outstanding, unpaid back taxes, or unsettled building code issues, it can be called a defective title.

Title Searches and Insurance

A title company must conduct a title search to guarantee that there are no liens, overdue taxes, or other problems with the certificate of title that can prevent the property from being sold, which forms an essential part of the sales process.

Property owners may obtain title insurance to cover any claims or defects on the certificate of title. This title insurance protects both the lender and the homebuyer of a property against any losses they may face as a result of defects on the certificate of title

The Consequences of No Title Insurance

Without title insurance, all relevant parties are exposed to severe risk in the case of a defect in the certificate of title. A buyer who finds the house of their dreams who discovers unpaid back taxes on the property from the previous owner can bear the entire financial strain of this outstanding tax charge.

They must either repay the back taxes or face the risk of losing their home because of non-payment. However, with title insurance, the homebuyer is covered for such expenses.

How a Certificate of Title Works

A certificate of title can be used for any kind of property with a title, including houses or land and motor vehicles. Once the owner's financial and contractual obligations have been met, they can take possession of the property.

The certificate of title contains the owner's name, as well as details about the estate. When a piece of real estate is purchased, the title is passed on to the new owner.

Certificate of Title vs Title Deed

Title deeds and certificates both serve as documentation to prove the ownership of property. However, there are some fundamental differences between the two.

A title deed is a legal document used when a home is transferred from a seller to a buyer, while the certificate of title serves as an impression of the status of a property and does not serve as a guarantee of legal ownership. The title deed may also include specific details regarding the property.

Title certificates have to include sufficient information to identify the estate as well as any encumbrances. A deed to real estate, on the other hand, may also include ownership constraints as well as more specific information regarding the property. Title deeds also form an essential element in a real estate transaction.

The primary function of a deed is to transfer ownership of the real estate to the owner. These title deeds include the building's address or other identifiable elements, as well as the official names of the parties involved with the transfer. Deeds traditionally included any commitments made by the seller and homebuyer as part of the sale, including the purchase price and any limits on the estate's usage.

Why Issue a Title Certificate?

Certificates of title are particularly crucial in property transactions. If a title company issues a title certificate on real estate, the certificate expresses the title business's belief that the seller is the rightful owner of the house or land. Because land, unlike other personal property, cannot be physically lifted and given to another person, determining who it belongs to is more complicated.

The fact that a person resides on a property does not imply that he or she owns it. As a result, the title company's certificate of title verifies that the individual selling has the authority to conduct the sale after conducting a thorough background investigation on the land or house ownership.

Non-real Estate Certificate of Title

The usage of certificates of a certificate of title is not limited to the real estate business. It can be granted for motorbikes, trucks, motor vehicles, aircraft, and other such assets in addition to lands and residences and is used when a vehicle owner wishes to sell their vehicle, as it is a way to provide proof that it belongs to him or her.

In other words, a certificate of title for a motor vehicle, truck, or trailer reveals who the true owner is.

The duty of granting a certificate of title to owners of these assets is frequently delegated to a local or governmental entity. Before a person may take a loan with a car, truck, plane, or another type of vehicle as collateral, the lender usually requests its certificate of title. Non-real estate certificates of title can generally be obtained from your local DMV office.

Key Takeaways

If you are buying a new home or an asset such as a vehicle, there is a process that you must follow. Receiving a certificate of title as proof that the buyer has the right to sell this asset to you is part of this process. Understanding how a title certificate works is important to protect yourself against potential losses.

In essence, a title certificate is an important document that reveals who the lawful or legitimate owner of a property or non-real estate asset is. It serves as proof of ownership before someone may assert ownership of a property.

Once a title insurance company has performed comprehensive evaluations, a certificate of title is provided to an individual, proving that he or she is the true owner of the property.

David is the co-founder & CMO of DoorLoop, a best-selling author, legal CLE speaker, and real estate investor. When he's not hanging with his three children, he's writing articles here!