Title Company: What, Why, How?

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You will need a title company to work with your home buying or selling plans early in the process. This information is often listed on the sales contract and preliminary funds will need to be given to the title agent within a few days of executing the sales contract.

Title Company is a company involved in examining and insuring title claims for real estate purposes. The company verifies ownership of real property and determines the valid owner through a thorough examination of property records in a Title Search. The title company usually does an abstract of title. The abstract determines the legal owner of the property; reveal any mortgages, liens judgments or unpaid taxes outstanding on the property and details any existing restrictions, easements or leases that affect the property. After completing the abstract, the company issue a title opinion letter. This will set forth all the things that should be done and any problems that should be corrected before a purchaser can receive a good title.

Title insurance, on the other hand, protects the lender and/or owner against lawsuits or claims against the property that result from disputes over the title. The insurance company will pay the damages to the new title holder or secured lender or take steps to correct the problem if a problem with the property ownership is later discovered such as an incorrect boundary description. This covers problems that did not show up during the title search or were missed by the examiner and errors in public records. Title insurance does not cover defects that occur after you purchase the property. Policies often exclude problems having to do with easements, mineral and air rights, and liens. Title insurance policies are paid in full with a one-time fee which is usually part of closing costs. Payment is usually made by the buyer, unless the state requires the seller to purchase title insurance or the seller agrees to pay for it.

Ideally, all previous claims to the property will be released during a title search, and if not, there is a title history issue that will need to be worked out before closing. The title company will use its research to prepare a preliminary title commitment, and this may be provided to the lender as part of the loan process.

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Before a title company issues the title insurance, it will prepare an abstract of title, which is a brief history of the titles for a piece of land. It lists all the legal actions that have been performed or used in conjunction with a piece of property. This is used to determine whether or not there is any kind of claim against a property. The abstract of title includes transfers, grants, wills and conveyances, liens and encumbrances. It also provides any evidence or proof of satisfaction or other facts or information pertinent to a piece of property. All potential buyers of a property should request this to determine the status of the property. Then, it will issue a title opinion letter, which is a legal document that speaks to the validity of the title.

These title companies also often maintain escrow accounts to ensure that this money is used only for settlement and closing costs, and may conduct the formal closing on the home. Escrow accounts contain the funds needed to close on the home. At the closing, a settlement agent from the title company will bring all the necessary documentation, explain it to the parties, collect closing costs and distribute monies. Finally, the title company will ensure that the new titles, deeds and other documents are filed with the appropriate entries.

There are two main types of title insurance policies: owner’s title insurance and the lender’s policy. When you buy your home, you will arrange to buy a title insurance which will cover your interest in that property. The limit of this owner’s policy will generally be for the market value of the house at the time of the purchase. If you will be obtaining a mortgage on the property, your lender will require a lender’s policy to protect their interest in the property. The lender’s policy will be written for the amount of the mortgage. You may be wondering why two policies are necessary to insure the same piece of property or you may be wondering if you have to pay two separate title insurance premiums. In most cases, you will pay for the two policies together and this cost will be a discounted price.

The owner’s policy will cover losses or damages you suffer if it is found that the property belongs to someone else, or if there is a defect or lien on the title, if the title is unmarketable, or if there is no access to the land. Your owner’s policy will have a section setting forth what is covered as of the effective date. It will guarantee that your ownership is free from defects or encumbrances, except and listed as exceptions in the policy, it will guarantee you have access to the land and it will guarantee that you have the legal right to sell the property and convey marketable title to a new owner.

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The lender’s or mortgagee policy, on the other hand, protects the lender for the amount of their loan. This type of policy is called the ALTA policy and is a standard policy approved by the American Land Title Association. It is issued to banks and other institutional lenders. In addition to covering the lender for the losses that the lender would incur if another creditor were first in line.

When an owner’s and a lender’s policy are issued at the same time, or concurrently, the premium is less expensive than if the two policies are issued separately. Since the title insurance company only has to search the records one time, and because a concurrent policy don’t increase the risk that much, the concurrent policy premium will generally cost about one third less than two separate policies.

The costs of the owner’s and the lender’s policies will vary depending on the location. The costs may vary from state to state, or county to county, or even from one company to another. Before choosing your title company or closing agent, inquire as to the prices they charge for a title insurance policy. Ask for the lowest rate allowed by law, and keep shopping for a lower rate if your closing agent will not negotiate on their fees.

Most lenders will require that you purchase a title insurance policy as a condition of closing, and the title company will prepare a title insurance policy on your behalf. Title insurance is crucial because it protects you from financial loss if there is a dispute or claim on the property later on. This type of issue ultimately could result in your loss of the property, which can be incredibly costly to endure. There may also be legal expenses, and these are covered by title insurance as well.

Look for a title company that has years of experience doing this. Contact the Better Business Bureau to determine whether the company has any complaints against it.

Note that you may be able to get a discounted rate on your title insurance if the property was sold within the previous five years; just call and ask.

You may meet with or talk to an agent from the title company on multiple occasions. First, you may decide to meet with a few agents from title companies before you buy your home to help you decide which company to go with.

If the title company maintains an escrow account for you, the agent may reach out to you to provide details on that account or you may contact him with questions.

If your title company handles your closing, you will meet with a settlement agent in person then. At this time, the settlement agent will explain all the documents related to the settlement before you sign anything. And, of course, if something goes wrong with regards to the title, you will likely meet with one of their agents then.

Consumers should feel free to contact their title company at any time to get answers to their questions on title searches, title abstracts, title insurance, escrow accounts or closings.

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The final function that a title company plays in the buying and selling process is assisting with closing. Your closing agent will collect all invoices outstanding that are related to the transaction and will collect the funds from various parties. He or she will prepare a closing statement that shows where every penny is allocated, and the closing agent will disburse the funds as necessary after all parties have executive the closing documents. The closing agent will also prepare, notarize and file closing papers related to the transaction.

These are all critical functions in the buying and selling process, so you should make an effort to find the best title company possible to work with for your transaction.

 

Source: realtytimes.com, Zillow.com, uslegal.com, Investopedia.com

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