Definition of certificate of title
What is a certificate of title?
A certificate of title is an official document issued by the state or municipality that identifies the owner (s) of personal property or real estate. A certificate of title provides documentary proof of ownership. It generally applies to immovable, although it could also be a business, a boat or a vehicle, among others.
When it is issued for real estate, such as land or a house, by a title insurance company, the certificate of title is a statement of opinion on the status of the title, based on careful examination, or title search, of specified public documents. The title thus embodies the right or proof of ownership over real estate.
Key points to remember
- A certificate of title is a document that officially grants ownership to the owner of the property referenced by that title.
- Certificates of title are often transferred from seller to buyer in real estate and auto transactions.
- The certificate itself is not a guarantee of free and clear title, and a title search should be performed before settling large transactions.
How Title Certificates Work
Certificates of title can be applied to any type of property with a Title, in particular real estate and vehicles. The owner can assume the title once his contractual and financial obligations have been met.
The information on the certificate of title includes the name of the owner and information about the property. Whenever a property is sold, title is transferred to the new buyer.
Sale of property
When selling a property, the owner must guarantee to the buyer that the title transferred is free and clear from any claim by anyone. Part of this process is to demonstrate proof of ownership by means of a certificate of title.
All goods that are sold or traded must be free of privileges and other debts before they can be transferred to another party. In other words, the title should be a clear title, which means that no creditor claims ownership because of the granting of credit to a borrower, and the owner has an uncontested right to the property or asset. If the title is not clear, it could be considered a bad title as there could be outstanding liens on the property, back taxes owed, or unresolved building code violations.
It is important that a title search be performed by a title company to ensure that there are no privileges, tax arrears, or issues with the title that would prevent the asset from being sold. In order for all parties involved to have an accurate valuation of the property, the maintenance of public records is necessary because it provides legal and public opinion regarding an entity’s interest in a specific property.
This public paper trail allows the parties to protect their interests against any third party claims. Once clear title is established, the previous owner passes the certificate of title to the new owner.
Non-real estate certificates of title
Certificates of Title are also issued for vehicles, including automobiles, buses, motorcycles, motor homes, trailers and trucks, airplanes and watercraft, and are often referred to as pink slips. These are issued by a public body appointed to identify the owner of the vehicle in question. Any lien or unpaid ready are identified on the certificate of title. A vehicle’s title certificate will contain the name and address of the owner, as well as the vehicle identification number (VIN).
A lender will often retain title until the obligation is satisfied, at which time the lien is released and the certificate of title will be sent to the owner. Take the example of auto loans. If you buy a new SUV and the dealer finances your loan, it will keep the title until you make your last payment. The title is transferred to your name when the loan is fully paid off.
Title and guarantee of ownership
A certificate of title is not a guarantee of free and clear title. There may be unregistered charges and privileges, incorrectly recorded information, or fraudulent activity that is simply unknown.
For these reasons, title insurance is purchased to protect the seller from any claims arising from prior or unknown, unrecorded or fraudulent activity. Title companies provide certificates of title to lenders who require these documents before approving mortgage ready.
Certificate of title vs deed
A certificate of title and a act are written documents that are used to provide proof of ownership. But the two have inherent differences.
While the certificate of title is an opinion of status and does not guarantee ownership, the deed is a document used in a transfer of ownership from a seller to a buyer. By issuing a deed, the seller transfers the interest to the buyer, also known as the conceding. The deed can also describe detailed information about the property.