| | 9. Title Insurance And The Closing Agent’s Responsibilities Introduction
What is a Title?
What is an Abstract?
What can make a Title defective?
What is Title Insurance?
Owner's Policies and Lender's Policies
Why buy Title Insurance?
What does Title Insurance Cost?
Preliminary Title Report (Prelim)
Who Pays for Title Insurance?
Who Picks the Title Insurance Company?
Deciding How to Hold Title Introduction With few exceptions, a home represents the largest single investment most people will make in their lifetime. Thus, it is only natural that an owner will want to make that investment secure by protecting the basic proof of ownership. Title insurance is the most effective and least expensive way of doing just that. Title insurance is issued by a title company or title attorney. Title agents not only issue the policy they also conduct the closing process. Lender's require title insurance. Most people don’t really know what is involved in the closing process. The closing process is where all funds are disbursed, closing paperwork is prepared, title deeds are prepared and notarized. The closing is usually handled by a title company or a title attorney. Among their many responsibilities are: - Cashing the buyer's deposit check and holding the money in the escrow trust account.
- Coordinating paperwork between the parties, agents, lender, title, insurance.
- Preparing and notarizing deeds and documents.
- Coordinating the funding of the loan.
- Paying off the seller's loan.
- Preparing the HUD-1 closing cost settlement statement for all the parties.
- Disbursing the sellers check and the agent's commissions.
- Prorating the annual property taxes and any other obligations
This is just a brief overview of the many responsibilities that the closing agent performs. What is a Title?
A title is the evidence or right that a person has to the ownership and possession of land. A defect in that title can be any legal right held by someone other than the owner to claim property or to make demands on the owner of that property. What is an Abstract?
An abstract is a history of the title to a particular tract of land. It is not a title! It consists of a summary of the material parts of recorded instruments affecting the title of the real estate. The abstract may be correct but the title imperfect. The abstract is not a guarantee. It is only a record of what has been recorded. It does not judge the correctness of any item it lists. It merely reports them for an examiner to interpret. Abstracts are not used in real estate transactions in many parts of the country. What can make a Title defective?
There are many possible causes of title defects that no examination can disclose. That is because they have never been recorded and thus do not appear in the abstract. A title insurance policy protects the owner against all of the hidden risks listed below, and many more: - Fraud- False claims of ownership, forged deeds, wills, signatures, conveyances, instruments, false representations, false records of all sorts, illegal acts of trustees, guardians, administrators, and attorneys.
- Human error- Errors in copying, indexing, recording; errors by administrators, executors, trustees, guardians and attorneys; destruction of records.
- Improper deeds and wills- Deeds by persons of unsound mind, minors; deeds delivered after death or without the grantor's consent; invalid, suppressed, erroneous wills, missing heirs, unsettled estates.
- Liens and other rights- Liens for unpaid estate, inheritance, income, property and gift taxes; homestead rights, community property rights; irregular court proceedings, court opinion reversals, lack of court jurisdiction; defective foreclosures.
What is Title Insurance?
Title insurance is a contract to protect an owner against losses arising through defects in the title to real estate owned. If the title is insurable, the company guarantees the owner against loss due to any defect in title or expenses in legal defense of the title pursuant to the terms of the policy. Owner's Policies and Lender's Policies.
A lender will often require a title policy for their protection alone. Such a policy does not protect the owner. To protect themselves against possible title defects, an owner should purchase an owner's title insurance policy on the property. Why buy Title Insurance?
When a person buys a car or consumer goods, they seldom need to know whether the former owner is married, single, or divorced; whether they have paid their taxes or are involved in a lawsuit. But when a person buys a home, it is necessary to have all of that information and much more. For while he or she may own the property, others may also have rights in that same real estate. A competent investigation can uncover such items as unpaid taxes, easements, restrictions and more. However, all items affecting the title are not contained in a single book, in a single office, or even in the same city. Then, add to this the possibility of human error at a multiplicity of points. Yet what is not in the public records often causes title problems. For all these reasons and many more, a property owner needs the protection afforded by title insurance. What does Title Insurance Cost?
The cost is directly related to the value of the property. The higher its value, the more coverage is needed. The premium is small compared to the total purchase price. The premium is paid only once and remains in force for as long as the property is owned by the insured and continues to protect the insured on warranties after it is sold. The cost for an lender’s title insurance policy which is to insure the lender is usually a nominal fee. Preliminary Title Report (Prelim)
Once the earnest money contract is signed by both buyer and seller, a commitment for an owner’s title insurance policy should be ordered. This commitment will be based upon a search of the public records. A preliminary title report issued by the Title Insurance Company that tells a buyer several things about the property. It tells you what liens are on the property such as the seller's current loan(s), state or IRS tax liens, or back property taxes. The prelim also notifies a buyer about any easements on the property. An easement is basically a right for someone else to use a portion of your land. For example, utility easements give the right to the Telephone Company to have telephone poles in your yard or cable companies to run cable under your property. The prelim will disclose those liens, defects or encumbrances that will be exceptions to coverage on the policy unless removed. Such a search will allow the purchaser to understand the manner in which the title company is willing to insure the condition of title and to insist upon the seller providing clear title to the property before exchanging the sales' proceeds for the transfer deed. Once this exchange is made and the transfer documents are recorded, the owner's policy will be issued, insuring the buyer against loss due to any undisclosed claim covered by his or her policy. If you have any questions, always make sure to ask the title officer assigned to the file to interpret the findings and make recommendations. Who Pays for Title Insurance?
There are two title policies that must be purchased in a real estate transaction (except cash transactions). One is the owner's (buyer's) policy and one is the lenders policy. Who Picks the Title Insurance Company?
Most title companies provide adequate service, however charges can vary significantly. Consult your agent or call a title rep for more information. Deciding How to Hold Title
Your title agent and/or loan officer will ask you how you want to hold legal title to your new property. Here are 5 common ways to hold title to your new home. 1. Sole ownership. Most single or divorced buyers hold title in sole ownership. For example, John Doe, a single man as his sole and separate property. A married person can also takes title to real property in sole ownership. However, their spouse usually must sign a quitclaim deed giving up any ownership interest in the property. There are no tax or other advantages of holding title in sole ownership. When the sole owner dies, any real property held this way is subject to probate court upon the owner's death 2. Tenants-in-Common. When two or more owners take title to real estate, especially if they are not married, they often become tenants-in-common. For example, investors might select this method. Each tenant in common owns a specified interest in the property. For example, one owner might own a 60 percent interest and another could own a 40 percent interest. The percentage ownership is specified on the deed. A major advantage is that each tenant in common can sell or pass their interest by their will to whomever they wish. For this reason, tenancy in common is especially popular in second marriages, so each spouse can will their share to their children from their first marriage. However, tenancy in common property is subject to probate court costs and delays. 3. Joint tenancy with right of survivorship. When title is held in joint tenancy with right of survivorship, all co-owners must take title at the same time, own equal shares, and the surviving co-owner winds up owning the entire property. After a joint tenant dies, the surviving joint tenant(s) receive the deceased s share. The deceased s will has no effect on joint tenancy property. A major advantage is that probate costs and delays are avoided when a joint tenant dies. The surviving joint tenant(s) usually need only record an affidavit of survivorship and a certified copy of the death certificate to clear the title. 4. Tenants by the Entireties- A tenancy created by husband and wife jointly owning real property with instant and complete right of survivorship. 5. Living trust. A good way to hold title to real property is in a revocable living trust. There are many advantages, such as avoidance of probate costs and delays. Until the death or disability of the trust creator, the home and other real estate in the living trust are treated normally. Since the living trust is revocable, real estate can be bought, sold and financed normally. If the trustor becomes incompetent, the named alternate trustor (such as a spouse or adult child) takes over management of the trust assets. When the trustor dies, the assets are distributed according to the trust terms. Privacy is a major advantage. Unlike a will, which becomes part of the public probate file, the living trust terms remain private. Another advantage is that court challenges of living trusts are virtually impossible, whereas challenging a will by disappointed relatives occur frequently. Many people feel that the best method for most homeowners is the living trust, because of all its advantages and virtually no disadvantages. However, there is a fee for your attorney to set up a trust. Consult him or her for prices. 6. Corporate Name- Usually this is for properties purchased by corporations, however many foreign nationals choose to hold title in a corporate name for reasons ranging from tax ramifications to secrecy. Please consult your real estate attorney for advice on holding title. | |
