Buying a home is expensive, but as interest rates have fallen drastically in the past few weeks, the housing market saw an 11-month high in February. The boost in home sales is a good sign for a floundering housing market. Surely, Realtors, title agents, and those in the mortgage industry have breathed a slight sigh of relief thanks to the Fed’s pause on interest rates increase, lower borrowing costs, slowing house price inflation, and rising wages have improved housing affordability. Now seems to be the time to sell and the time to buy.
Despite the help from the Fed with rates, most homebuyers will need to finance the purchase through a lender, like their bank or credit union. As a result, those lenders will require a title insurance policy to be purchased to protect their interest in the property. Many homebuyers, unfortunately, don’t understand the importance of buying their own title insurance policy or how choosing a reputable title company can help protect their interests.
Here are some talking points that real estate agents and title agents can share with homebuyer to convey how important it is to get a title search completed by a professional.
1. When buying a property, always perform a title search
We’ve explained the basic process of conducting a public records search to find liens on a property, but a title search will reveal more than liens. It also establishes who has the right to sell the property to you.
A title search will answer three important questions about a property:
- Does the seller have a marketable title (meaning can they sell the property free and clear)?
- What kind of restrictions or allowances are imposed on the property? This could be things like easements, public access agreements, covenants or Homeowner’s Association regulations, and other equitable servitudes.
- Do any liens exist on the property that require payoff at closing? This would include mortgages (which is typical), unpaid taxes, mechanic’s liens, or special assessments.
Having an exhaustive title search performed by an experienced professional will establish clear, marketable title by revealing any outstanding claims prior to transfer of title. Without title insurance, the new owner will be liable for these claims after closing.
2. A title company will guarantee the accuracy of the title search
It’s possible for anyone to do a property title search and find liens within the county public record, but working with a title company will ensure that should a lien or issue with ownership be revealed after closing on the property, both the lender and homeowner are protected.
Once the title is deemed marketable, the title company will issue a title insurance policy.
There are two types of title insurance policies issued:
- Lender’s policy
- Homeowner’s policy
A lender’s policy is required to be purchased for every transaction involving a loan. If a lender requires this, it’s a good indication that consumers should be demanding this coverage as well.
3. A title company has access to detailed property records
The process of a title search typically begins with accessing the public land records held in a centralized government office. These records are held by the governing county of the property in the United States. Today, many of these records are available online at no cost in many areas. Some counties may charge a fee to access the information or some information may not be electronically recorded yet.
Title companies and real estate law firms work with an underwriter to insure their policies. This relationship means that the title agent or agent-attorneys have access to special records on property that aren’t available to the public.
A property abstract is a collection of legal documents that detail the transactions of that property. It will typically include deeds, mortgages, wills, probate records, court litigation, and taxes, and any other legal document that affects the property. Some states, like Texas, call their collection of property documents "title plants." A title plant is composed of a collection of maps, geographic records, alphabetic indexes, copies of documents, and other reference material for a property based on its location.
The names of all property owners, how long a particular owner held title, and the price of the land when it was sold will be in the abstract or title plant. This compliation of information doesn’t exist in the public records, but it contains a condensed history based on publicly recorded documents. The aggragation of all this data help title examiners and searchers create Title Commitments quickly and accurately.
Some states, like California, don’t use formal property abstracts. Instead, a Title Report is produced by either the underwriter, title company, law firm, or third-party vendor. This report isn’t an abstract, but it has the same type of information to establish ownership and title defects.
Unlike an abstract, a Title Report won’t show the release or satisfaction of a lien like a mortgage at all, but it will show open mortgages and encumbrances.
Once a title abstract or title report is provided to the title company or law firm, a Title Commitment is created.
4. A title company will “cure” any title defects before closing
After the title search has been conducted and an abstract or title report has been produced, the title commitment is issued for a real estate transaction.
This is the title company or law firms commitment to provide title insurance to the lender and the buyer under the terms described. This commitment outlines the conditions, exceptions, and exclusions that will affect the title insurance policy.
Conditions to the Title Commitment are requirements that must be met before or at closing, and they include:
- The seller paying off his or her mortgage
- Payment of all recorded liens against the property at the time of sale
- Release of all liens, judgments, HELOCs, lis pendens officially recorded after closing
It will also highlight what current title defects need to be cleared before marketable title can be issued. This is where some closings can hit a snag because title curative work can be extremely time consuming and expensive.
Working with an experienced title company or third-party due diligence partner like PropLogix to resolve title defects means that home sellers will be able to get the clear to close quicker.
The title commitment is like a road map for a title agent in the transaction. It shows everyone involved in the transaction exactly what needs to be fixed, what will be covered and what will not be covered by the title insurance policy.
5. A title company acts as an intermediary between the buyer and seller
In addition to a title search, another important role provided by the title company or law firm is holding escrow. Escrow is when a neutral party creates an account to hold the money involved in a real estate transaction. The title company makes sure that the conditions of the contract between the lender, seller, and buyer are met before the money or title is transferred to another party.
How to find a title company
Homebuyers working with a real estate agent should ask about recommendations for a local title company. Asking those who recently purchased a home is also a good place to start. You should also be sure to research the company. Make sure they have an extensive background in the type of transaction you’re involved in. Some agencies are specialized in commercial and not residential or refinances and not resales, so make sure the company you choose is a good match.
Also, be sure to shop around for the best premium rates in your region. If you’re buying an owner’s policy (which you should), make sure it has as few exclusions and exceptions as possible and that it covers the full purchase price of the home.
Depending on the real estate contract that you negotiate, you may be limited in your choice of title company. It’s customary that whoever agrees to pay for the policy is the one who chooses the title company. You can also choose to work with a real estate law firm instead of a title company. Agent-attorneys perform the same title search and issue the same type of insurance as a title company, but retaining a lawyer means you’ll have the added benefit of your own counsel at the closing table.