What is a certificate of title?

We all know what it means to own something. But how do you prove you own it? Especially if you want to sell it or use it for a loan?

That’s where a certificate of title comes in. Certificates of title are state- or municipality-issued legal documents that show you own a piece of property. A certificate of title proves ownership of any sort of real or personal property (a possession), but it’s most commonly applied to big-ticket assets people must borrow money to pay for, like houses and automobiles.

While it feels like it should be simple, property ownership can get complicated, especially when it comes to real estate. Here’s how certificates of title help homeowners verify their status.

What is a certificate of title in real estate?

A certificate of title is a document that officially grants ownership of the referenced property to a particular holder. In the world of real estate, a certificate of title typically refers to an opinion document drawn up by a title company or attorney stating that the title to — that is,  possession of — the property is legally held by the current owner. It can also be a document issued by a state or municipality that identifies the property owner(s).

The certificate of title carries the name of the person who is responsible for the property until the point at which that person decides to sell it to another. It doesn’t contain any information about previous owners. It might have attached to it information related to funds used to acquire the property, as in a mortgage.

Speaking of mortgages, which most people use to purchase homes: The purchaser may consider themselves the homeowner — but they aren’t the title holder. The borrower’s lender is the one who actually possesses the certificate of title. Only when the borrower makes their final payment to their lender do they become the full, legal owner of that property and the possessor of its title. At this point, a municipality or government agency grants the purchaser a certificate of title in their name.

What information is on a certificate of title?

A certificate of title has identification information on it, naming the property and the person holding the title. For example, the certificate of title for a car would include information like the vehicle identification number (VIN) or license plate number. In real estate, it would have the full address of the home or other sort of building.

The title will also identify the owner, typically by name and address.

Certificates of title will also indicate any liens, financial claims or other encumbrances on the home, or easements allowing someone else to use the property. Mortgage statements are often attached to the certificate, as well.

Any sort of issue with the certificate of title can impede or even cancel real estate transactions, according to Baltimore-based Melanie Hartmann, owner of Creo Home Buyers, a Maryland purchasing company. One way that “a home sale might fall through is that the home does not have a clear title and the homeowner is not able to clear it in time for closing.”

Certificate of title vs. deed

A certificate of title is different from a deed, though the two do overlap a little in their functions when it comes to real estate. Both identify and offer proof of ownership, for example.

A certificate of title is an official municipal document that acts as a record of ownership. A deed is a contract-like document (though it may be filed with a municipality) that describes the property, drawn up when transferring ownership of that property. It mainly comes into play during purchases to define the extent of the ownership and often to indicate whether a transaction’s buyer or seller is responsible for claims and liens against the property.

Why is a certificate of title important?

Certificates of title are important because they serve as proof of ownership. If you can’t prove that you actually and legally possess a property, you’ll have trouble doing things like selling your home or convincing a lender to give you a home equity loan.

The certificate of title will list things like liens, outstanding taxes or encumbrances on the property. Having a clean title lets you show that you own the home free and clear of any issues, giving you full control over how to use it or transfer it to someone else. Most mortgage lenders will require a property to have a clear certificate of title before they approve financing to buy it.

Examples of real estate certificate of title

If you purchase a home, you receive the certificate of title in your name straight away — if you pay cash. If you’ve financed the purchase, you’ll receive it when (and only when) you made the final payment on your loan.

Generally, the lender will send a discharge of mortgage document to the local registry of deeds office, notifying them that you’ve paid off the mortgage. From there you can get a certificate of title from the relevant authority in your county or municipality. Once this happens, if you check the title on your home, it should come back clear with no loans, liens or other encumbrances.