A Title Company’s Three Primary Roles
Whether it’s your first time buying or selling a home, or you’ve bought and sold several properties, one of the most confusing aspects of the process is the lingo real estate agents throw around. Fixtures, encumbrances, contingencies – real estate jargon starts flying fast and furiously. This is a bit of the stuff that we as realtors study to earn our license and as part of our continuing education requirements to keep our licenses active.
The various players in the process, their roles and responsibilities, seems confusing to many of our clients. Among the questions we get asked most, the title company sits at the top. What does a title company do?
In property law, Black’s Law Dictionary defines title as “. . . the means whereby the owner of lands has the just possession of his property.” So, how does one determine who has “just possession” of a particular piece of property and, thus, the right to sell it?
The title company tells us – but that’s not all it does. What does a title company do? Let’s take a look at a title company’s three primary roles.
1. Researching The Home’s Title
Shortly after the ink dries on a contract to purchase a home, the contract is delivered to the title company where the contract will be assigned to a closing agent. Since the contract is also considered “escrow instructions,” this title agent is tasked with following it to the letter.
Then, the research begins. The first step is a thorough examination of any and all public records pertaining to the property. These include, but aren’t limited to:
- Mortgage records
- Probate court records
- Divorce records
- Sewer assessments
- Tax records
For instance, say Jeff is trying to sell his deceased mother’s home which is sitting on foreclosure’s doorstep. He received a reprieve from the bank – he had 90 days to sell the home or they will begin the foreclosure proceedings.
During the escrow period, the bank’s lien, placed while Jeff’s mother was still living, came up and the transaction came to a halt until the bank submits a release of the lien. The title company helps manage this process.
Some of the issues that a title search turns up are trivial sometimes larger issues need to be cleared before the transaction can proceed.
2. Issuing A Preliminary Title Report
The title company then issues a “Preliminary Title Report.” Because it lists information about the home that no other document does, the Preliminary Title Report is one of the most important documents a buyer will receive.
For instance, the preliminary report (known as the “prelim” in agent jargon) lists the home’s legal description:
“Southwest quarter of Southwest quarter (SW ¼ of SW ¼) and West Half of Southeast quarter of Southwest quarter (W½ SE¼ SW¼) of Section Eleven (11), Township Four (4) North of Range Eight (8) West, containing sixty (60) acres of land, more or less, together with the residence, garage, barns and garden,” and so on and so forth. As you can see in these Guidelines for Writing Legal Descriptions, the state of California does not take this lightly!
This is another example of real-estate-as-a-second-language in which agents must be fluent! For you, it’s very important information that you should keep with all of your legal records from the transaction.
ThePreliminary Title Report also lists everything that is turned up while researching the property. This includes any liens, encumbrances and other title defects. Pay careful to attention to these items since they are typically listed as items that will be excluded from your title insurance coverage unless they are corrected.
Consider the preliminary title report as an offer to insure, not a complete history of the property.
3. Issueing The Title Insurance Policy
Title research may not turn up all issues with the property’s title. Your title insurance policy will protect you against any future claims against the property for events that happened in the past that might have an effect on the title.
For example, say Bratley holds title to his grandmother Mable’s home as tenants in common. In 2005, Mable was admitted to a long-term care facility. The following year, Bratley sold gramma’s house, forging Mable’s signature on a full-authority power of attorney. He even had it notarized.
When the home sold, Bratley not only signed the closing documents on behalf of himself and Mable, but authorized that the proceeds from the sale be wired to his personal account.
Three years later, Mable passed away, leaving the executor of her will to settle her estate. In so doing, the homeowners who bought Mable’s home were served with a lawsuit, laying claim to Mabel’s heirs’ interest in the property.
Thankfully, they are protected by their title insurance policy!
If you’ll be getting a loan to buy a home, lender’s title insurance, is mandatory. Since the home is the loan’s security, lenders will use all avenues available to protect their interest in the property. You would be wise to do the same!
Both types of policies require only one payment, at closing, and the policies are in force for the life of the loan (for the lender’s policy) and for as long as you own the home, in the case of the owner’s policy. A smart investment!
The average cost of a title insurance policy, according to The National Association of Realtors, is approximately $1,000. The price will vary, depending on region and the price of the home.
We work with several great title companies here in El Dorado and Sacramento counties. We would be happy to make an introduction so you can learn more about the title process in a real estate transaction. Just drop us a note via the form below!
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