What is a Title Insurance Company?
Most people do not understand that a Title Company is a neutral third party to a Real Estate transaction. A Title Company’s job is to coordinate the interests of all parties to a real estate transaction, including the buyers, sellers, lender and real estate agents. There are many contract nuances that need to be satisfied in an ever more complex and litigious society and they make sure that all requirements for settlement are fully satisfied. Your Agent will submit a contract to offer to purchase real estate on your behalf. The Sellers Agent will review the offer and advise the Sellers of their options. Once all parties agree to the contract provisions, the contract is ratified. Your Agent will then advise you of at least 3 different Title Insurance companies. This is essential as many Brokers and Lenders often own an affiliate Title Company. In some instances, they have the lowest price and work with your Agent on many transactions, but might not be the best fit for your Settlement. Once you shop fees and experience, your agent will send the contract to the Title Company. The Title Company will review your contract for any special provisions which include disclosures, addendum’s, inspections, repairs, and other special instructions. This step is key as many settlements occur with or without a survey but we always advise getting a survey. Once the Title Company double checks all contract provisions, they are ready to begin the title process. Below are a few steps that happen which most buyers and sellers do not fully understand the work involved or the time it takes to complete. They are:
Obtaining a Title Abstract
In every county courthouse around the country there are legal professionals called Title Abstractors that complete a Title Abstract which provides a history of the property, or chain of title to determine the property details and its legal ownership. This process will give a clear history of the property and the Title Company will find and clear any and all liens, which include taxes as well as any other claims on the property. The Title Company will examine the title and ensure a clear title as part of the settlement process. The title needs to be clear to transfer it to the buyer from the seller in a a Real Estate transaction so in essence the new buyer will receive a clear and marketable title to their new home.
Obtaining a Survey
In many cases for DC Metro Real Estate transactions there is no need for a survey but we still see many buyers requesting them. In some instances your lender will require it but that depends on the history and area the property is located. Many buyers have dogs or small children and often will plan on installing a fence so many municipalities require a survey for this. In some cases there is already a house location plat map or drawing already on record and be viewed online. Many Agents mention ordering a survey but it depends on the deal. The Agent or Title Company can order this. Many homes already have clear property lines but some have existing fences that could be encroaching or crossing over a property line and should be corrected. If any problems exist, a survey will show them so they can be resolved before settlement. All parties should be notified and a copy of your survey, if ordered is usually provided to you with your copies at settlement.
Establishing Property Tax Prorations
Many sellers and buyers often forget about property tax prorations until they view the settlement statement during closing. The Title Company will verify with local and state taxing authorities when taxes were paid last or are a lien on title and need to be paid or prorated at settlement. Many sellers have escrowed taxes and insurance so the lender often pays these charges automatically but need to be prorated to the date of transfer. Sellers will receive their escrow balance back from their current lender and in some cases either get or receive a credit or debit for taxes at settlement. The buyers will often see a new escrow account established for them as either a lender requirement or option they chose through their lender but we see many buyers opt to pay them on their own. Many lenders will charge a fee for escrow waiver or a basis point increase in the lenders interest rate if no escrow is selected.
Preparation and Issuance of the Title Insurance Policies
The Title Company will prepare a title insurance commitment which means that the underwriter for the agent (which all title companies are agents for their underwriters) will agree to insure the Title of the property in preparation for settlement. In many instances your lender will require a lenders title insurance policy as part of your settlement charges to protect the lenders investment interest in the home. In cash deals there is no requirement because there is no lender. Your new owners title insurance policy is optional and must be purchased at settlement. This policy protects the new owner and is strongly suggested to all new buyers as this title insurance policy protects them from a multitude of problems that could include any hidden risks, liens not on record like contractors liens, and any fraud that may have happened against the property. There is standard and enhanced versions and please ask your agent or title company to educate you about the cost difference and protections of each.
Preparing Loan and Legal Documents for Settlement
The Title company will receive and coordinate with your lender to prepare your loan documents to make sure all documents are precise and correct. Often there are small or minor errors that are discovered and corrected at this stage. Your lender will send lenders instructions to prepare the settlement statement better known as the Hud settlement statement. Once prepared, the hud is sent to your lender for approval and again sometimes there are small corrections or clarifications that happen at this stage which takes time, emails, and phone calls to facilitate. The seller documents like a deed and other transfer documents are also prepared within state and local guidelines as each county has different rules that have to be followed to allow a sale of the property. Keep in mind that Title companies do what your contract, lender instructions, state and local laws, as well as underwriter guidelines tell us to do. So coordinating all of that does take some time and is different for each transaction.
Conducting the Settlement or Closing
In many instances both parties to the transaction can be present or can sign their side separately which is known as a split settlement. The Title company will have a Settlement Agent like The Gentleman Closer or an Attorney complete the settlement documents with buyers and sellers. This process can last anywhere from 1 hour to our longest settlement lasting a little over 5 hours. Each document will be explained and should be explained so all parties understand what they are signing. Take the time to read and ask any and all questions you want during this process. We encourage it! The Title company will review all documents again and collect as well as disburse funds collected at settlement to designated parties in compliance with the settlement statement. Many agents will sit and observe as well as review documents as they are signed. This is a time for the buyers and sellers to understand their documents but it is a process that each settlement agent does differently. The title company then returns the executed documents to the lender and sends out other legal documents for recording. The Title company will pay off and release the existing sellers mortgage, record the new mortgage or deed of trust, record the deed, and obtain the release of any existing liens on the property to ensure a clear transfer.
Choosing your Title Company and Settlement Agent
The buyer has the right to choose their own settlement agent and title company as well as the seller so sometimes this process is complex so the services offered by The Gentleman Closer with our referral title companies have happened thousands of times with happy sellers and happy buyers leaving the table with a clear understanding of what they just signed. This process is not about just the papers but the people that come together to make this process smooth, stress free and informative. It takes hard work from all parties for this to happen so choose carefully and choose wisely. We can answer any questions you have. We can also meet you any where you want to make this process easier for you.
One thing to remember is you have a choice of Title Company and Settlement Agent. There is a difference. We suggest browsing our Title Company Referral page and as always, we would love to help you and be your one and only Settlement Agent.