Chain Of Title: Meaning in Real Estate Investing (2024)

What Is Chain Of Title?

The term chain of title refers to the history of ownership of a piece of property. Titles are normally registered for land and real estate, personal property—such as a vehicle—or a business. Titles are normally registered and maintained with a centralized registry or authoritative body. The chain of title traces the historical transfer of ownership from the current owner back to the original owner. Keeping rigorous and accurate title records is important in order to establish ownership of property or an asset.

Chain Of Title Explained

A title is a legal document that proves legal ownership over an asset or piece of property. Assets such as homes, land, other types of real estate, vehicles, and personal property such as jewelry all have titles to demonstrate ownership. Ownership of other pieces of property, such as businesses and any assets related to an enterprise, is also demonstrated by titles. These titles are normally registered with the appropriate authority—vehicles are registered with a motor vehicle agency, real estate titles are registered with the clerk's office of the town or county where the property is located.

A chain of title shows all the owners of a piece of property. It is sequential in nature, going from the very first owner all the way up to the current owner. When an asset changes hands, the title is—and should be—transferred from the previous owner to the new one. Parties must complete paperwork and submit it to the appropriate authority. Failure to transfer title can result in problems establishing legal ownership and/or issues with selling the property in the future.

A chain of title has considerable significance in real estate. In a real estate transaction, the chain of title is researched on behalf of the buyer by a title company, which summarizes all title transfers and encumbrances in a title report. Title insurance is used by buyers to protect against financial loss ensuing from errors in the title report.

Whilechains of title are common in real estate, they are also important for intangible property, such as farming or timber rights , and forintellectual property, such as film and music. In themotion pictureindustry, a chain of title appliestoany documentation thatestablishes proprietary rights in afilm. It also refers to any creative compilations in other fields, where many people have contributed to the project, thus acquiring authorship rights, or where materials were culled from many sources. Chains are extremely important for film purchasers and film distributors, as they establish the veracity of the owner's proprietary rights in theintellectual propertyin a film, book, or encyclopedia.

Special Considerations

Various registration systems, such as theTorrens titlesystem, have been developed to track the ownership of individual pieces ofreal property. Inthe United States, insurance companies issuetitle insurancebased upon the chain of title to the property when it is transferred. Title insurance companies sometimes maintain private title tracking of real estate titles, in addition to the official records. In other cases, the chain of title is established by anabstract of title, sometimes, although not always, certified by anattorney.

Widespread lack of clarity in chain of title results from a 1995 decision by many lenders to rely on a third entity—a specific company,Mortgage Electronic Registration Systems (MERS)—to hold title nominally, in an effort to enable the buying and selling of mortgage liabilities without registration of changes of ownership with local governments.U.S. states have raised objections to this practiceand even sued over it.