What is a Title Search and Why is It Important?
If you’ve ever bought a piece of real estate in South Carolina, then you probably remember that one of the items on the to-do list before closing was a title search. Since the sale went through, the title was likely clear and you probably didn’t think much of it. But what is a title search and why does it matter? What can happen if you fail to do a title search before buying a piece of property?
The Purpose of the Title Search in South Carolina
A title search is a thorough examination of the public record for anything relating to the property in question. That includes information such as:
- Current mortgages
- Pending lawsuits
and anything else that may affect the property. The purpose of the title search is to bring any potential issues to the attention of the buyer and seller so they can make an informed decision before pursuing the transaction.
Although all this information is in the public record, it’s not necessarily easy to find and therefore it’s typical for an independent third party to do the title search and produce a title report, which is then reviewed by an attorney. (South Carolina is one of a number of states that requires an attorney to assist with the closing.)
If the title search reveals an issue such as an existing lien or unpaid property taxes, it’s said that the title has a “cloud” on it. Sometimes, a clouded title will simply delay the closing as the issues are cleared up and the cloud is lifted. Other times, it can kill the transaction entirely, as it can be too risky for the prospective buyer to purchase a title that’s not clear. They may find themselves on the hook for unpaid taxes, or embroiled in liens and judgments they had nothing to do with.
What is Lis Pendens?
One thing a title report might uncover is a notice of “lis pendens,” Latin for “suit pending.” If a lawsuit has been filed that affects the title of a piece of property, a notice of lis pendens may be filed by an attorney with the clerk of the county where the property is located in order to alert anyone doing a title search of the pending suit.
Someone purchasing a property with a notice of lis pendens on it is bound by the outcome of the underlying suit as the new property owner. For this reason, many people will avoid purchasing such a property. This makes a notice of lis pendens a powerful tool when used incorrectly, as it can unfairly cloud a title and prevent the sale of a property when the property wouldn’t actually be affected by the outcome of the suit.
This was an issue in a case that came before the South Carolina Court of Appeals in November, 2018, Gecy v Somerset Point (read the opinion here). Benjamin C. Gecy is the owner of River City Developers, a residential construction company that built several homes in the Hilton Head subdivision Somerset Point at Lady’s Island. Coosaw Investments was the real estate developer and in charge of the HOA at Somerset Point. River City alleged that Coosaw deviated from construction designs and standards; Coosaw alleged that River City deviated from the standards. In 2011, River City sued Coosaw, and Coosaw counterclaimed and crossclaimed. Coosaw also filed a notice of lis pendens on Lot 16 in the development.
The Court of Appeals looked at a number of issues which aren’t relevant here, but the takeaway is that the lis pendens was not legitimate, because the counterclaims and crossclaims did not affect the title to the real property. Therefore, the notice of lis pendens could only serve to deter potential buyers from buying Lot 16 when there was no danger of the suit affecting the property at all. The Court cited a 2002 SC Court of Appeals decision, Pond Place Partners, Inc. v Poole: “The lis pendens mechanism is not designed to aid either side in a dispute between private parties. Rather, [the notice of] lis pendens is designed primarily to protect unidentified third parties by alerting prospective purchasers of the property as to what is already on public record, i.e., the fact of a suit involving property.”
In short, a notice of lis pendens should only be filed when the property in question could be affected by the outcome of a lawsuit, and not as a weapon to, for example, spite the opposition or gain leverage. The Court of Appeals also confirmed in the River Point decision that “a maliciously filed notice of lis pendens can act as the primary basis for a malicious prosecution claim” in some cases. (But, unfortunately for Gecy, not in the River Point case.)
It’s not required by law that a prospective buyer does a title search before purchasing real estate in South Carolina, but skipping the title search is, frankly, reckless. Real property can come with a long list of disputes, competing rights, liens, lawsuits, and more, and a buyer may have no idea what they’re getting themselves into.
If you’re planning on purchasing commercial property in South Carolina, work with an experience commercial real estate attorney like Gem McDowell. He and his associates at the Gem McDowell Law Group in Mt. Pleasant, SC can help you through the process as well as provide strategic advice to help you grow your business. Call today to schedule your free consultation at 843-284-1021.