What it means
Property ownership is recorded in public registers, such as a land registry or a county recorder's office, depending on the country. Each time a property is bought, sold, mortgaged or subject to a legal claim, a record is usually added.
A title search follows the trail of those records back through time to confirm that ownership passes cleanly from one party to the next. The search looks for anything that could interfere with the buyer's rights.
Typical problems include a mortgage that was never formally released, a lien for unpaid taxes or contractor bills, an easement that gives a neighbour or utility the right to use part of the land, and a court judgment against a previous owner. Even a simple clerical error, such as a misspelt name, can cause trouble later.
A title company, lawyer or conveyancer usually carries out the search. They prepare a report summarising what they have found, which the buyer's lawyer and the lender review.
If problems are found, they must usually be fixed before the sale closes, or the buyer can renegotiate the price or walk away. The search is closely linked to title insurance, a policy that protects against losses from title defects.
An insurer will normally not issue the policy until the search is complete, and problems found in the search may be listed as exceptions that the policy will not cover. The two together give the buyer and lender a measure of comfort, although neither replaces careful reading of the report.
For businesses, a title search matters when buying land, buildings or taking property as security for a loan. A bank lending against a building wants to know that the borrower owns it and that no earlier lender has a higher claim.
For a company investing in a development site, a hidden restriction on use could damage the entire project. A search only reflects what is recorded.
Some risks, such as forged documents, hidden heirs or claims that were never filed, may not show up, which is why insurance is still used. Searches also take time, so they should be started early in the transaction, ideally before the buyer has spent heavily on surveys, designs or financing arrangements.
In practice
Real-world examples.
Example
A retailer plans to buy a building for its new flagship store. The title search reveals that a previous owner granted a neighbouring business a right of way across the car park, which would reduce the parking the retailer is counting on.
Example
A bank is asked to lend $800,000 secured on a warehouse. The title search shows an earlier loan registered against the property, so the bank asks for evidence that it has been repaid before it will agree to lend.
Example
A couple buying their first home find, through the title search, that the seller's builder has not been paid for an extension and has registered a claim. The solicitor makes sure the claim is settled from the sale proceeds on completion.
Case study
Seen in the real world.
Harlow Foods is an illustrative, fictional company planning to build a distribution centre on a plot of land costing $3.5 million. The board approved the purchase in principle, subject to a satisfactory title search.
The search found that, many years earlier, a previous owner had agreed that no building above a certain height could be built on part of the site, and the restriction was still recorded. Harlow's design needed that part of the site for a tall automated storage system.
The illustrative result was that Harlow renegotiated the price, getting $350,000 off, and redesigned the building to a lower profile. The finance director noted that the cost of the search, a few thousand dollars, was tiny compared with the problem it uncovered. The board added a rule that no land purchase can be approved until the search report has been read by both the property lawyer and the finance team.
Watch out
Common mistakes.
- Skipping the title search to save time or money, when hidden claims can cost far more than the search.
- Assuming the seller's word is enough proof of ownership, when only the public records show what is registered.
- Believing a clean search removes all risk, when some defects do not appear in the records.
Questions
People also ask.
What does a title search find?
It finds the chain of ownership and any recorded mortgages, liens, easements, restrictions and court judgments linked to the property.
Who performs a title search?
A title company, lawyer or conveyancer usually does it, and the result is shared with the buyer and the lender.
How is a title search different from title insurance?
A search is an investigation of the past records, while title insurance is a policy that pays out if a title problem later emerges.
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