Title Companies and Your Real Estate Closing
You can already have your eye on the property you want, get your funds together for a down payment, get approval for a loan, get all your necessary ducks in a row, but nothing will derail a real estate deal quicker than title problems.
Real Estate Title Companies: By Definition
Legally, the title is evidence of right that a person has ownership and possession of land and property. It’s possible, though, that someone other than the owner has a legal right to that property. This person can then claim the property or make demands on the owner as to its eventual use.
The title company then steps in with a title search, as part of the closing process. By combing through public records, they will reveal if any other party has an interest in the property, as well as uncovering title defects, liens or restrictions. Outstanding taxes, unsatisfied mortgages (sometimes in the case of a foreclosed property) and judgments against a recent owner, mechanic’s liens for work on the house, or restrictions on the use of the land can all be turned up this way. It doesn’t stop there; there can be frauds, forgeries, inaccurate property descriptions, probate disputes, clerical mistakes or any number of other problems in a title.
The title company then rates the titles as good, fair, marketable, questionable or bad (all of which have complex legal definitions and implications).
So…Do I need Title Insurance?
The answer to that is pretty easy: Yes!
In the days before title insurance (in the 19th century), the buyer was simply out of luck if problems with the title arose, and he lost his whole investment (and was still liable for the loan he had taken out). Title insurance through the title company will protect you from financial loss. Sometimes there can be title defects that even the most diligent title search will not turn up. Title insurance will also pay the legal costs, in case you have to defend against a claim.
At closing time, there will be two separate types of title insurance that you’ll be expected to pay for:
- A Lender’s Policy, which will protect the lender with a valid, enforceable lien on the property
- An Owner’s Policy, protecting you from title defects that existed prior to the policy being issued. If a valid claim is filed, the title insurance will protect you not only on the face amount of the policy, but for full costs of a legal defense on the title.
- Title insurance (for both owner and lender) will generally come to one percent or less of the total value of the property. You can, by law, choose your own title company and insurance, but you can expect it to be just as much a part of the closing process as homeowner’s insurance, inspection, survey and appraisal costs.