Buying a home is an exciting process that requires a lot of knowledge from all parties involved, especially homeowners. The intricate process of a real estate transaction is cumbersome – a complex one that often leaves participants bewildered yet driven by the prospect of finally holding the keys to their new home.
Within this realm lies a significant facet often shrouded in mystery for both homebuyers and sellers: the world of title agents and title insurance. These unsung heroes and their teams wield immense influence over the real estate narrative. In fact, they play a pivotal role as the custodians of homeownership.
A Brief History
The inception of the very first title company dates back to 1876 in Philadelphia, Pennsylvania. This establishment aimed to safeguard real estate purchases and mortgages against potential losses arising from defective titles, liens, and encumbrances. The landmark case of Watson vs. Muirhead brought into light the vulnerability buyers faced when title searches were conducted haphazardly or legal opinions regarding the validity of liens were mistaken.
The advent of title insurance companies promised a safety net – a commitment to stand by their title searches and opinions in the event of future issues. They meticulously conduct property research prior to issuing title policies for both lenders and homebuyers, ensuring all is in order.
Let’s delve into the multifaceted role of these institutions before, during, and after a real estate closing.
Understanding the Concept of “Holding Title”
“To hold title” signifies legal ownership, whether it pertains to personal possessions like a car or real estate like a house. Often, the terms “deed” and “title” are used interchangeably, but they signify distinct concepts. The title represents ownership, while the deed serves as the document, officially recorded, substantiating the property’s ownership and the right to sell it in the future.
Unraveling Title Insurance’s Importance
Title insurance is issued as a commitment, promising to provide a title insurance policy provided certain conditions are met to address issues uncovered during the title search. This commitment acts as a guide for the title company, ensuring that any liens are cleared prior to, or during, the closing using sale proceeds.
Unlike homeowner’s insurance, which guards against future property calamities, title insurance covers past issues that eluded detection before the property was purchased. This could encompass concealed liens, boundary disputes, fraudulent deeds, omissions in inheritance records, and inaccuracies in public records. Without title insurance, homeowners are left to tackle these disputes independently, risking their property ownership and possibly even their homes.
There exist two main types of title insurance:
- The Lender’s Policy: This safeguards the lending institution or mortgage company, covering the loan amount against title defects. It’s obligatory for obtaining financing.
- The Homeowner’s Policy: This protects the homebuyer’s equity or interest in the property.
Navigating the Title Examination Process
Title examiners assume a pivotal role within a title company. Armed with various indexing and recording systems – public land records, title plants, and the Mortgage Electronic Registration System (MERS) – these professionals embark on a quest to unveil the chain of title documents.
This information serves two critical purposes:
- Establishing the Seller’s Ownership: Ensuring the seller legally owns the property.
- Identifying Title Encumbrances: Detecting any encumbrances that must be resolved before the closing.
A Glimpse into the Type of Information Unveiled During a Title Search:
- Mortgages: These must be settled using sale funds before transferring title to the new owner.
- Other Loan Products: Second mortgages, home equity loans, etc., are also treated as liens that need to be paid off.
- Judgments or Liens: Unsettled debts can result in liens against the property.
- Community Association Assessments: Association dues, violations, and liens are checked.
- Restrictions: Certain properties may carry limitations on ownership or usage.
- Easements: Agreements allowing specific individuals access for specific purposes.
- Leases: Rental agreements that may carry obligations for the new owner.
Mapping Boundaries with Land Surveys
Beyond establishing ownership, the title search entails determining property boundaries. Land surveys are crucial in defining these borders and identifying potential encroachments. In instances where surveys aren’t conducted, title insurance policies might have exceptions for boundary issues. Encroachments, such as structures encroaching on adjacent properties, are addressed by the title company when issuing the policy.
Crafting a Title Opinion
The culmination of a title search yields a title report or abstract of title, offering an ownership history of the property. Based on this data, a title opinion is formulated. This opinion reflects the title company’s belief in the seller’s right to sell the property and their willingness to provide title insurance. If issues emerge during the inspection and research phase, they must be resolved before the final policy issuance.
The Coordination of Closings
The role of a title company extends to coordinating the closing itself. Buyers and sellers may converge at the title company’s office, or a loan signing agent might be dispatched to facilitate the signing and notarization of closing documents. Some jurisdictions mandate the presence of an attorney during the closing process. During this session, the title agent or agent attorney remains neutral, ensuring a smooth settlement and confirming the deed and title transfer.
Post-Closing: The Disbursement
Following the closing, the title company undertakes the responsibility of disbursing funds to the seller, lender, and other vested parties. These funds, held in escrow accounts, are managed by an escrow agent. There are two escrow accounts often created: one for paying the seller and one for paying the lender.
The lender’s escrow supports the finalization of mortgage payments, taxes, and homeowner’s insurance into one monthly payment. The lender or servicer usually calculates the payment to add a safety net in the event that the borrower falls behind on payment or taxes increase to a higher-than-anticipated level.
Finally, the title company delivers post-closing packages to all parties and ensures instruments listed in the title commitment are recorded in the public record.
Conclusion
While the role of a title agent can be confusing for homeowners, they are essential in safeguarding your home purchase. Therefore, homeowners should have a general understanding of their role and be in close communication with them to ask questions, understand the process, and be aware of all the moving pieces in the real estate transaction.