A title is the foundation of property ownership. It is the owner’s right to possess and use and transfer the property.
Why is transferring title to real estate different from transferring title to personal property, such as a car?
Real estate is permanent and can have many owners over the years, as well as rights to use the property. In order to transfer clear title to real property, it is first necessary to determine the rights outstanding on the property.
What is a title search?
A title search is a detailed examination of the historical records concerning a property. These records include deeds, mortgages, court records, property and name indexes, taxes and many other documents. The purpose of the search is to verify the property owner’s right to sell or finance the property and to discover any claims or defects to the property.
What kind of problems can a title search reveal?
A title search can reveal several types of defects in title, liens, encumbrances and restrictions. Among these are unpaid taxes, easements, unsatisfied mortgages, judgments against the property owner and restrictions of use or transfer.
What is a title commitment?
A title commitment is based upon a search of the public records. A preliminary title report issued by the Title Insurance Company tells a buyer several things about the property. It tells them 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. Always make sure to ask the title officer assigned to the file to interpret the findings and make recommendations.
What is an Abstract?
An abstract is a history of the title to a particular tract of land. It is not a title! It consist of a summary of the material parts or 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, conveyance, 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.
An escrow is an arrangement in which a neutral third party holds onto legal documents and fund on behalf of a buyer and seller and distributes them following the buyer’s and sellers instructions.
Opening an escrow can be a source of convenience and protection for someone buying or selling real estate. Both buyer’s and seller’s can move forward together or separately in providing inspections, reports, loan commitments and fund, deeds and many other items using the escrow holder as the central depositing point. The escrow holder can take many actions on their behalf to help facilitate the close of a transaction.
Why do I need an Escrow?
Whether you are the buyer, seller, lender or borrower, you want the assurance that no funds or property will change hands until ALL of the instructions in the transaction have been followed. The escrow holder has the obligation to safeguard the funds and/or documents while they are in the possession of the escrow holder, and to disburse funds and/or convey title only when all provisions of the escrow have been complied with.
How does it Work?
The principals to the escrow – buyer, seller, lender, borrower – cause escrow instructions, most usually in writing, to be created, signed and delivered to the escrow officer. If a broker is involved, he will normally provide the escrow officer with the information necessary for the preparation of your escrow instructions and documents.
The escrow officer will process the escrow, in accordance with the escrow instructions, and when all conditions required in the escrow can be met or achieved, the escrow will be "closed." Each escrow, although following a similar pattern, will be different in some respects, as it deals with your property and the transaction at hand.
The duties of an escrow holder include; following the instructions given by the principals and parties to the transaction in a timely manner; handling the funds and/or documents in accordance with the instruction; paying all bills as authorized; responding to authorized requests from the principals; closing the escrow only when all terms funds in accordance with instructions and provide an accounting for same – the Closing or Settlement Statement.
Who chooses the Escrow?
The selection of the escrow holder is normally done by agreement between the principals. If a real estate broker is involved in the transaction, the broker may recommend an escrow holder. However, it is the right of the principals to use an escrow holder who is competent and who is experienced in handling the type of escrow at hand. There are laws that prohibit the payment of referral fees; this affords the consumer the best possible escrow services without any compromise caused by a person receiving a referral fee.
A construction escrow is an agreement in which a neutral third party holds onto the funds and distributes them during the construction. A cost breakdown of the project is given to the title company to follow and is listed by categories, such as excavation, plumbing, and rough finish carpentry. Each sub-contractor and supplier is listed, along with the amount that each will be paid. At specific points in the project, the builder and borrower give a draw request to the lender and to the title company.
THE HOMESTEAD ACT
The Homestead Act protects the equity in your home from future liability or claims from unsecured creditors. The laws may vary from state to state as to the amount of protection and rules governing it.
Filing a Homestead Declaration is a very reasonable form of insurance against certain unforeseen financial difficulties.
The closing or “Passing of papers” is the event that confers home or business ownership upon you. The Closing or Settlement is where all parties come together and review, approve and sign all of the necessary documents to complete the transaction.
It can take place at the closing Attorney’s office, the Registry of Deeds or another location that is mutually acceptable to everyone involved.
Typically present at a real estate closing is an attorney presenting the lending institution, and possibly additional attorneys representing both the buyers and the sellers. The real estate Brokers for the buyers and sellers are also present at the closing.
What services will I be paying for when I pay closing costs?
You will usually be paying for such things as real estate commissions, appraisal fees, loan fees, escrow charges, advance payments such as property taxes and homeowners insurance, title insurance premiums, pest inspections and the like.
Can I pay for my closing costs in installments?
No, and it is easy to understand why. Many different parties will have fulfilled their responsibilities and be awaiting payment upon closing. Te title or escrow company will disburse money to those parties, pursuant to the escrow instructions, when funds are available.
Will I be allowed to write a personal check to cover my closing cost?
Your closing funds should be in the form of a cashier’s check, issued by an institution from the state of your purchase, made payable to the title company or escrow office in the amount requested. A personal check may delay the closing or may be unacceptable to the title or escrow company. An out-of-state check could also cause a delay in your closing due to possible delays in clearing the check.
How much should I expect to pay in closing costs?
The amount you pay for closing costs will vary; however, when buying your home and obtaining a new loan, an estimate of your closing costs will be provided to you pursuant to the Real Estate Settlement Procedures Act after you submit your loan application. This disclosure provides you with a good faith estimate of what your closing costs will be in the real estate process. An itemized list of charges will be prepared when you close your transaction and take title to your new property.
What is pro-ration of property taxes?
This is the process of charging either the buyer or seller for their share of real estate taxes owed on the property for their respective time of ownership. Taxes are said to be “pro-rated” back or forward to the due date of the property taxes
What is pre-paid interest?
This is interest due from the date of a loan closing to the first day of the following month. Most loans require payments to be due on the first day of the monthly. Each monthly payment reflects the principle and interest due on the loan for the previous month. A loan closing on the 20th day of the month will require interest adjustment through the 1st day of the following month. The first payment will then be due on the 1st day of the month following. Interest adjustment is considered a settlement charge and will be disclosed on the HUD.
What is a HUD Settlement Statement (HUD-1)?
This is a summary of the financial portion of the real estate transaction. The HUD will list the purchase price, loan amount, closing costs for both buyer and seller and show all pro-rations and sums to be disbursed by the title company to all parties.
If a Buyer or Seller does not have clear title, the transaction will not take place until all issues are resolved. The title examination will disclose who the actual owner is. You don’t want a problem that occurred long before you bough your property to deprive you of the right to use or dispose of it.
Title insurance protects against losses arising from unknown or undisclosed defects in the past chain of title. Unlike other types of insurance, a title insurance premium is a one-time flat fee regulated by the Division of Insurance and paid at the time of closing. For this one-time premium, an owner’s title insurance police remains in effect as long as the insured or the insured’s heirs retain an interest in the property or have any obligations to warrant the property when they sell it.
A policy of title insurance is like a pre-paid legal agreement. The title insurance company will provide legal defense against any challenges to an insured’s title (depending, of course, upon the type of policy coverage) and will reimburse the insured financially for any losses as a result of hidden defects in ownership rights.
What is title insurance?
Title insurance is a policy of protection against loss if any of the problems listed above result in a claim against your ownership.
How does title insurance protect my investment if a claim should arise?
If a claim is made against your property, title insurance, in accordance with the policy, will assure your legal defense, including paying court costs and related fees. If the claim proves valid, you will be reimbursed for your actual loss up to the face amount of the policy.
What are the different types of title insurance policies?
There are two types of title policies, a lender’s policy and an owner’s policy. The lender’s policy protects the lender’s interest in the property as security for the outstanding balance under the buyer’s mortgage. The owner’s policy protects the buyer’s investment in the property up to the face amount of the policy.
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 a lender’s title insurance policy which is to insure the lender is usually a nominal fee.
An appraisal is a supportable estimate of a property’s market value, which is determined by a trained and certified appraiser. The appraiser measures the likelihood that a property will maintain its value over the duration of the loan.
FNMA 1004 Full Residential Appraisal
FNMA 1073 Full Condominium Appraisal
FNMA 1025 Full Multifamily Appraisal
FNMA 2000 Review Appraisal
FNMA 2006 Desk-top Field Review
FNMA 2055 Drive-by Appraisal (also available with interior inspection)
FHLMC 2070/2075 Drive-by Appraisal (also available with interior inspection)
FHLMC 704 Drive-by Appraisal
Recertification of Value Appraisal
How should I hold title to my property?
Who has right, title and interest to the property?
The new deed conveying the premises must name the grantor identically to the way the grantor was named in the deed that initially conveyed it to him or her. If the client took title individually and, during the term of ownership, conveyed a partial or joint interest to another party, all of the parties holding an interest in title must be named as grantors.
As in naming the grantor, correctly naming the grantee and the type of tenancy created is just as important. Names in both instances need to be spelled correctly and that titles, if any (such as “Jr.”, “III” and middle initials), are properly used.
TYPES OF TENANCIES
The rights of the grantee with respect to the land held are affected by the manner in which title is held.
Single individuals may hold title individually. When an individual is joined as a grantee to one or more additional individuals, the options for holding title grow.
Two or more individuals. May hold title as “tenants in common”, under which they each hold a partial but separate interest in the land. Two or more persons may also hold ownership as “joint tenants with rights of survivorship” Which means they own the land as a unit. If one or more tenants die, the remaining tenants hold title together. A special type of tenancy is called “tenants by the entirety”. This form is only available to a husband and wife. Each spouse owns equal shares to the property and upon the death of one spouse the surviving spouse obtains title individually.
* Laws may vary from state to state