Almost always with a property transaction that includes financing and probably most private party transactions, someone will order a title insurance policy which includes a title search.

Title searches offer a way for interested parties to determine how a property is encumbered. Title searches are also run on potential home buyers to show if they have any publicly recorded information. If you ask most lenders or involved properties about what a title search is, they will often tell you that the search is to determine easements and liens against the property. However, title searches are also conducted on the potential buyer of the property in certain circumstances.

It doesn't happen a lot but occasionally you'll get someone buying a home that has certain types of public information recorded against them. If this information will negatively impact the title to the property, the lender may not want to lend on the property until the adverse record is removed.

Government recordings against the borrower, such at tax liens, are the primary culprit for causing problems with financing. If the bank is lending most of the money to purchase the home, such as in the case of 95% to 100% financing, there simply won't be enough equity to risk being able to clear this type of lien in cases of borrower default.

Government liens can usurp the banks 1st mortgage or 2nd mortgage position which can easily jeapordize financing. Some credit report give you an indication if there is trouble to come. More often than not lenders won't know for sure until the title policy comes to them.