“Abstract and title search.” It’s one of those miscellaneous fees you must pay anytime you purchase real estate, but most of us don’t have a clue what it means or what we’re paying for. In fact, the abstract process is relatively simple.
Bill Blue, General Manager of American Abstract, puts it simply. “An abstract is basically a written history of a piece of real estate. It must show an unbroken chain of title for the past 40 years.”
Though the buyer is ultimately responsible for obtaining the abstract and title opinion, it’s customary for the seller to provide an updated abstract to the buyer. “When you purchase a home in Iowa, the state requires an abstract and title search, and what we do is go through every document related to that property—from sales, contracts, court actions, even easements and liens—that could affect the clear sale of the home,” Blue says.
Most home buyers never give the abstract and title search a second thought. But a series of problems in the 1930s motivated the state to revert to the current abstract process. Iowa now has a nearly hassle-free system that ensures buyers will have no ownership issues in the future.
“During the ’30s,” Blue says, “Iowa used a title insurance system, like every other state. The company did a preliminary search to make sure the seller had clear title on the property, then sold the buyer insurance guaranteeing that it would cover any problems that might arise later. Unfortunately a lot of those insurance companies went bankrupt, and homeowners were left to deal with the fallout.”
Because of that, the State of Iowa made it illegal for insurance companies to sell title insurance in the state. Mortgage companies instead require buyers to provide an abstract that verifies the property has a clear title, with no encumbrances (liens by contractors, easements from neighbors, and other unpaid charges).
Although the last decade or so has made the ordering and delivery system a little quicker—customers can now order abstracts online and have the title certificate sent via email—the search process hasn’t really changed much over the years.
“Some of the work can be done on computers because some of the records are available that way. But for the most part, what we do is time-consuming legwork that the homeowners really couldn’t do themselves—and usually don’t want to,” Blue explains. The typical search can take an abstract company up to a week to complete.
Generally the lender has an abstract company it works with regularly and recommends to its customers, but sellers are free to choose their own. Fees don’t vary significantly from one company to another.
“The average abstract and title search costs about $350,” says Blue. “The real difference from one company to another can be in the depth of the search and in the service provided. Companies are only required to have records going back 40 years, but American Abstract has been in business since 1856, and our records go back as far as 1840. So when we do a property search, we have the records necessary to do a search as far back as the property has been in existence. We also offer a free abstract storage service, so homeowners don’t have to worry about where their copy is or have to pay for a new search when they’re ready to sell.”
Other states have struggled with legal issues and insurance costs as a result of the old title insurance system that they still use. In Iowa the abstract system is so effective, homeowners don’t even have to think about it. And though we have a fee to pay at closing, we have no title insurance premiums and we have peace of mind that there will be no surprises down the road.
The simplicity of the abstract process is just one more reason to buy a home in Iowa.