Typically running concurrent with the period for the home inspection contingency, there is a second contingency in your Agreement referred to as “Due Diligence”. Due diligence is actually a set of reviews grouped under one umbrella, allowing you to review title issues; deed restrictions; easements; HOA rules, regulations, bylaws, etc; insurance requirements and costs; etc.
If you haven’t done so already, you will need to select an attorney or title company with whom to work. If you don’t have a preferred provider to work with, ask your REALTOR for a recommendation.
Once selected, have your REALTOR direct the attorney/title company to begin a review of title – to ensure the Seller can convey a “clear and marketable” title to you at closing. (NOTE: most title companies are owned by an attorney or have an attorney on staff)
The selection of title companies is critical. Under Paragraph 15 of the contract you have a limited time frame (say, those same 10-12 days) in which to raise objections if there is a “defect” on the title, or if there are deed restrictions, recorded easements, etc that are not acceptable to you.
The title company will look at the chain of title for the property and whether it is encumbered by any judgments, liens, or lawsuits (often referred to as “clouds” on title). They also will look for recorded easements, deed restrictions and variances that could affect your willingness to proceed with the transaction.
The title company will also secure title insurance for your new property. Title insurance comes in two forms: a lender’s policy and an owner’s policy. You are encouraged to purchase both! If you are financing your purchase, your lender will require the lender’s policy in case there is a defect in the title that is unknown at the time of purchase. It will protect against any title problems (unless the problem is specifically listed as an exception in the policy). The owner’s policy does the same thing – except it protects the home owner instead of the lender.
At this point, you may wish to consult the title attorney or your tax advisor on the best way to “hold title”. Different methods of holding title have different legal, estate and tax implications, especially when selling or upon death of the title holder.
(NOTE: there are title companies who will want to wait until after the loan commitment has been issued before commencing work on the title review… they want to be certain the transaction is moving forward before committing the time to conduct the title review. But, this will be after the 10-12 day “due diligence” window has expired. Ask your REALTOR to recommend a title company that will complete the review in a timely manner)
And ask your REALTOR to build additional protections into the contract in case something unexpected presents itself after the deadline. (In truth, you should NOT have to ask your REALTOR to do this – they should know to do it without being asked).