Three case studies that show why you should always perform a title search
GUEST OBSERVATION
I have worked in the property investment industry for a long time and have learned something new nearly every day. Some of the most important lessons I have learned involve the simplest things like requesting a title search.
A title search may seem like a mundane or irreverent task to you now, but once you read the three cases below, you will understand why a title search is so important.
A title search can sometimes reveal unexpected surprises and not the good kind.
Title Search Case #1 – That’s not our home?
Bob and Mary were applying for a business loan and they were using the equity in their home to fund the purchase of this new business.
About one week into the loan application the bank called to give them the “bad news”. The land they owned did not provide enough value to support the loan application. In fact, the bank asked Bob and Mary, “We thought you told us you owned a home, not a block of land.”
After much confusion it was discovered that the Titles Office had noted the incorrect lot and plan number on their title. At that point in time Bob and Mary technically owned a vacant block of land, two doors down the road! This took weeks for it to be proven incorrect and then rectified.
Title Search Case #2 - Mark who?
Jane and Mark were refinancing a unit in North Queensland, which they owned for many years and planned to use the equity to support their latest purchase. The increase on the property was approved, as was the loan for the new purchase. Everything was going to plan until the day of settlement. Their world suddenly became very stressful.
As settlement was about to happen, it was noted Mark’s middle name on the title of the property and on his birth certificate was not spelled the same. Yes, Mark’s driver’s licence and passport were the same as the name on the title.
The settlement was aborted. Jane and Mark had to pay default interest on the purchase for three weeks until Mark could prove he was the rightful person on the title and on the purchase documents. Mark also had to rectify the spelling error on his birth certificate, which his mother knew about, but never thought it was enough to worry about.
Title Search Case #3 – Nearly debt free...
Jim and Jenny purchased their family home in 1984 and paid it off within 10 years. When they made the last payment they were very proud and promptly approached their bank for a copy of the title deed. After speaking with the bank, Jim and Jenny changed their minds as the bank told them they would have to pay a fee to have the title deed released to them. The bank also suggested they would be the safest place for the title deed to be held.
Many years later in 2004, Jim and Jenny agreed to act as guarantor for their son to purchase a small farm and they offered their home as additional security. Their son paid down the loan within a few years and then refinanced the farm so he could purchase more equipment and stock.
One day, Jim and Jenny decided to request a copy of their title. They discovered there were still two registered mortgages against their property, which they believed was totally unencumbered.
Their are several valuable lessons you can learn here:
- Carefully check data entry
Make sure your title search has been correctly registered – human error is possible, even in the titles office.
Check to see if your names are spelled correctly and are exactly the same on all identification documents, in particular on your birth certificate.
Make sure you cross check your lot and plan number. You can do this through your local council and/or order a copy of the plan for your lot. - The more you learn, the more you earn
If you have paid off your home, make sure you learn about the potential investment opportunities that come with all your new equity. Find out how you can generate wealth using your home. Remember, it is far wiser to have your money working for you and not the bank.
If you seek further education and learn how banks leverage against mortgage backed securities, it makes it a lot easier to obtain and understand good professional financial advice. - Always understand your risks
When you sign up to be a guarantor for a loan, you are offering your assets as security for the debt on the loan. If the loan cannot be paid, the bank or lender has the right to go after your assets because you have agreed to be the guarantor for the loan. If the loan is increased, then the bank also has increased ownership over your assets because you are a guarantor of the loan. This can occur with or without your knowledge.
For example, when John and Jenny agreed to go guarantor for their son they did not fully understand their risk with the second mortgage registered again with their home. Nor did they know this could be extended to future borrowings their son may commit to without their consent or knowledge. They should have obtained more advice on the risks of offering a limited guarantee.
In Summary
- Conduct regular title searches on all property you own.
- Make sure all details are recorded correctly and as you believe they should be.
- Make no hesitation regarding the release of a mortgage once you have repaid the loan.
- The cost to have a mortgage released is minimal compared to the potential risk if you leave it registered without full knowledge of the lost opportunity and/or risk associated.
- Obtain a full understanding of the opportunity available to you if you have equity in your home. You must also understand the cost of lost opportunity if you are not making smart financial decisions.
If for some reason you cannot obtain a palpable copy of the title, it is not the end of the world. Thanks to the Torrens title register, all titles are digitally stored. The Torrens title system, which transfers property ownership through title registration rather than the deed, was introduced in 1863.
Now that property titles are digitally stored, it eliminates the risk of you losing all your property if you lost the tangible copy of your title. However, it’s always better to be safe than sorry so we strongly encourage you to keep your title in a safe deposit box at the bank or you can ask the bank to hold it for security.
Dianne Crichton is a property market advisor at Your Future Strategy.