Tina Hilton

So we've got the title report back from the abstractor, the processor has drawn up the title commitment and sent it off to the Lender. Now what? We wait for a Clear to Close from the Lender?

Yes and No.

While a Clear to Close is required before scheduling an actual closing date, there is also plenty of work the title processor needs to complete before then as well. First, they have to make sure that the requirements listed on the title commitment are fulfilled through closing.

This means that they will have to obtain payoffs for any loans, liens or judgments against the property. This involves contacting lenders, attorneys, tax offices and any parties involved in order to determine the amount of money that will be required to pay them off and to be sure that upon payment that a release or discharge will be issued. Depending upon circumstances, this can at times take a bit of time to obtain. Any information that sellers can give regarding current encumbrances on their property is extremely useful. In fact, some parties will require the sellers themselves to be the party that obtains the payoffs, etc. Listing agents and sellers alike can help move this process along by assisting with any information or assistance that the title processor might request, beginning with a signed release form allowing the title company access to these records and information.

In the case of condominiums and properties with homeowners associations, the processor will also be required to collect any fees due to be paid through closing as well as to be able to determine the 'proration' amount.

Pro-ration is a term you'll hear at closing as you review the HUD 1 settlement statement. A pro-ration simply is determining the breakdown of fees, taxes, utility payments and other property expenses between buyer and seller based on the closing date. For example, if the seller has already paid his 2009 property taxes through December 31st and the closing date for the property is August 30th, the seller should only be responsible for taxes through the closing date. This means that the dollar amount of taxes from August 30 through December 31st will need to be determined and the at closing the buyers will credit (or pay) the seller with that amount of money via a tax pro-ration.

At this point in time the Listing Broker and Buyers Broker should be getting some important information to the title processor. You'll want to be sure that the title company has the correct spelling of the parties names, that the title company knows how the new buyers want to 'take title' and what the real estate brokerage fees and commissions are going to be. Any special costs like warranty programs and agreed upon repair bills to be paid through closing should also be sent to the processor as soon as possible.

The term 'taking title' simply means the way the Buyer(s) want to take possession of the property. Is this a husband and wife taking title as joint tenants, is only one of them going to appear on the deed or is this a single person?

An additional item needed when the property involved is a condominium is the Resale Certificate. The seller must obtain a certificate from the condominium association showing such information as a current budget, expected special assessments, ongoing litigation and the amount of reserves available for repairs. It includes all the documents the developer handed over to the unit's original owner. The title company will need a copy of this to be included in the closing package.

If there are any outstanding title issues, this is when the processor works on trying to 'cure' them. If there are outstanding mortgages by prior owners, calls need to be made to determine why a release has not been issued. If there are encroachment issues, sellers might need to obtain easements from neighbors or move items that are encroaching on others property. If the survey comes back and shows that the property isn't in compliance with local zoning rules, the seller will need to see if they can get a variance from the locality in order to move forward. And these are just a few of the dozens of possible title issues the processor might need to deal with. Some are not difficult to cure, others can actually cause the real estate transaction to fall through.

As you can see, there is plenty of work going on behind the scenes at the title company. In my next post, I'll discuss the Clear to Close, scheduling the closing and preparing the closing package. I do understand that in some states, it is the responsibility of an attorney's office to prepare and conduct the closing, but there is someone in their office taking these same steps and doing these same tasks. So if the 'title company' designation doesn't work for you, insert "closing attorney'.

*Please note that these posts are written from -+-my knowledge gained as a title processor in the state of Maine. Different states have different rules regarding who can and cannot perform a title search, issue title insurance and perform a real estate closing. Some states require that an attorney be on staff at a title company and perform the title abstracts, others, like the state of Maine allow outsourcing to abstractors who are not attorneys*

In this installment of my series we're going to leave the preliminary work behind and get into the real core of what the title company (or title attorney's office) does and why it is so important in the purchase of property. We've gotten to the point where the completed title abstract returns to the office and what happens to it from there.

But first I want to talk about one last, very important item that is done in the preliminary stages of working with a file. Ordering a survey. In the state of Maine, a survey was not necessarily required in a real estate purchase, it depended upon the wishes of the lender or parties involved. As it is an added expense, many lenders did not require it either, relying on the "Survey Affidavit" signed by the parties involved. In the document the seller swears that they know of no title defects and the buyer signs acknowledgment that they know a survey has not been done and they are willingly taking the word of the seller saying there are no defects that a survey might have disclosed. Many buyers don't think of anything but the money saved by not having a survey or mortgage loan inspection plan done. Buyer beware! It is entirely possible for the seller to have lived in a property for years and not be aware of possible encroachments, easements, etc. that have taken place that may effect the property. The cost of having a survey or mortgage loan inspection done is well worth the peace of mind knowing that you're not going to find out after you've purchased the property that the in-ground pool the prior owners installed is encroaching on the neighboring property or some similar situation. Let the title company know that you want one done early in the process as depending on the location of the property and workload of the surveyor, it could take some time to complete.

Now on to the title abstract. Regardless of whether an in-house attorney or an outside abstractor has searched the title, the processor will receive a written report from them with the following information concerning the property:

• The name of the person or persons who currently hold title to the property
• Mortgages and other liens held against the property, this includes tax and utility liens
• Any judgments concerning the property
• Any recorded documents that effect the property such as easements, rights of way, and other restrictions as to use of the property.
• A chain of title showing ownership of the property going back a set number of years depending on your location. Generally between 30 and 60 years.
• And a copy of or information that allows you access to the current deed, including the legal description of the property.
• If there are any issues regarding title, the attorney/abstractor will make note of such in the report.
  

The processor will use this information to create a title commitment to send to the lender. This document states that the company has committed to insuring the property in question but with any requirements or exceptions that may be listed in the document.

An example of a requirement would be that all outstanding mortgage(s) be paid off and released, any outstanding liens be paid, a deed executed between all current title holders and the buyers, etc. All items listed under the requirements must be addressed before or through closing. For example, the pay off amount on a seller's current mortgage will be deducted from proceeds and sent to the mortgagor to pay of the mortgage. The mortgagor is then required to issue and record a Discharge of Mortgage or Mortgage Release.

Exceptions would include easements, water rights, rights of way and any other items and/or restrictions upon the property itself. Subdivisions and condominiums may have long lists of requirements and/or restrictions that would be included in this area. Any title issues arising from items listed the exception area of the commitment and subsequently the title policy, are not included in the title insurance coverage.

Some common title issues that come to light upon review of the title report and preparation of the title commitment are prior owner mortgages that have been paid but not discharged, outstanding liens and judgements, additional individuals on title and life estates that have not been or need to be released.

Once the title commitment is created, the processor sends it to the lender, oftentimes along with a closing protection letter and starts the next steps towards closing while waiting for the lender to issue a clear to close. Then they get to work on preparing the file for closing, which includes attempting to resolve title issues. I'll talk more about that in my next post.

First, let me apologize for the long silence between posts in this series. My excuse? Moving. I moved from Maine to North Carolina in April, and the months leading up to the move were crazy. Not quite as crazy as my days working as a title processor, but close.

But I'm beginning to get settled in, and am ready to pick up where I left off in this series.
In my last post, the processor had sent the title order information to the abstractor to do a title search. This can take anywhere from a day to several days depending on the complexity of the title. But our processor isn't just twiddling her thumbs while waiting for it to be completed.

*During this time, our processor is gathering information, contacting the town or city to get the status of taxes paid or unpaid as well as the water and sewer departments to order a final reading so that all unpaid charges can be paid at closing. The processor also contacts the real estate agents involved, usually the listing broker at this point, to get all pertinent information such as broker fees, home warranty amounts, earnest money deposit amounts, seller's mailing address and other information such as condominium association contact information as it applies. Agents can help the closing process out by trying to include as much information as possible at this point. Any additional fees, seller paids,etc. should be indicated so that the processor is aware in advance of HUD preparation.
Depending on the title company, the processor may also contact the new buyers with information such as brochures on title insurance and get information such as proper spelling of names and how they want to take title of the property.

Since the processor is working on many title orders at once, by the time they have collected this information chances are the title search has been returned by the abstractor.
Upon receipt of the abstract, it should be reviewed by someone familiar with real estate titles. Sometimes this is an in house attorney and sometimes this is the processor themselves.
In the next installment, we'll see just what the processor is looking for in the title abstract and why.



*activities are based on a purchase closing. Certain items such as the status of taxes are also gathered for a refinance closing, but the fact that there is no transfer of property means that many of the steps are not required for a refinance closing.

(This post is part two in a series focused on giving an in-depth look at exactly what happens behind the scenes at a title company. I have drawn upon my own 4+ years of experience as a title processor/real estate paralegal in southern Maine in writing this series. Please be aware that things could vary according to what state you are in.)

Whether you're a loan processor, mortgage broker or real estate agent, you're all familiar with that point in time when the file gets sent to the title company. How many of you know what really happens once it gets there? Pssst...I'm going to give you a top secret peek into exactly what happens to your precious file once it reaches the title company, and as I do so, give you tips on how you can help make the processes go smoother. Let's begin.

You either fax or e-mail your 'title order' to the title company. And what exactly should a title order consist of?

#1. The actual title order sheet. This sheet should include your name and contact information, the borrower's name and address. The property address including the county it is in, the amount of the loan, the name of the Lender, if it's a purchase transaction the sales price, the sellers name and address, any real estate agents involved and their contact information.

#2. If this is a purchase transaction you should include a copy of the purchase and sale agreement and any other supporting documentation that may assist in the title search. For example, a current deed or deed reference, condominium association contact information, copy of resale certificate, etc. An anticipated closing date should also be included. Remember, the more information you can give the better.

#3. Again, if this is a purchase transaction, you should know if the Lender requires a Mortgage Loan Inspection Plan or survey. If it is a requirement of the loan, let the title company know this. Even if you don't find this out until after you've sent the order, contact the title company as soon as you are aware this is a requirement. This simple step can help you and your clients avoid big headaches later on. The earlier the title company can order a survey/MLIP the better. We'll go into further detail in another post, just suffice it to say that this is crucial. Also, some buyers in cash purchase transactions may decide they want a survey/plot plan done as well. This is something you should ask, and encourage even with the additional cost. Encroachments, zoning infractions and the like are uncovered by having one completed. It is a wise choice and well worth the cost.

Upon receipt of the title order, the processor immediately orders a 'title abstract or title search' to be completed. Sometimes a title company will have an in-house abstractor who completes title searches, but equally as common is outsourcing this step to independent, freelance abstractors. Title searches encompass searching the Registry of Deeds in the county the property is located in. Depending upon what is found, and abstractor may also need to follow up at county courthouses in the case of judgements, etc. associated with the property. In the state of Maine, many title searches still require an actual visit to the Registry or Courthouse in question as not everyone has the information indexed online yet. This process is also called the 'title exam' or 'title examination".

The next post in this series will tell you what the title processor is doing besides waiting for these items to be completed.

As a real estate professional, the title company or title attorney is a necessary part of the puzzle. But how much do you really know about what goes on there? And do they really provide more than just frustration and additional cost of insurance? I hope that in a series of posts, I can not only answer that question but give you an insight that can help you work hand in hand with the title company and give your borrowers/sellers a smoother transaction.

First, what exactly is a title company/title agent? A title company or title agent is an important component in the sale or refinance of real property. Not only are they an agent for a title insurance company (i.e. First American, Chicago Title, etc.) but they are responsible for completing a title search on the property to be sure there is ‘clear’ title. Clear title means that there are no issues that may bring into question whom rightfully owns the property, including any access rights, easements and rights of way to the property. It also ensures that there are no encumbrances on the property (i.e. unreleased mortgages, liens, judgments, etc.) that could cause someone other than the property owner to have rights to the property. Can you see how important this part is? No? Ok, let’s give an example.

Let’s say you and Cousin Jimmy inherited Grandma’s home. Cousin Jimmy agreed to sign a Quit Claim deed so that you were sole owner of the property. Great! Years later you’re ready to sell the property and move on. But apparently the deed from Cousin Jimmy never was recorded at the local Registry of Deeds. And sadly, he’s passed on. Now if you were able to sell the property without a title search, you might never find out that the deed wasn’t recorded, and somewhere down the line Cousin Jimmy’s daughter finds out that her father owned half of the place. Can you see the problem? The new owners would be in quite a pickle, since the title was never ‘clear’ or totally yours to transfer. And this is just one out of a myriad of reasons for the need of a title search.

The title company/agent also prepares for and conducts the real estate closing. It sounds pretty simple, but it actually involves a lot of work. The title processor is responsible for pulling together all of the information required for closing from many different parties. I’ll go into the details in a later post, but suffice it to say that it’s like putting together a jigsaw puzzle, bringing the pieces together until they have a complete closing file, ready to close.

And of course, the title company/title agent also provides the title insurance. Many people fail to understand a need for title insurance stating that they have homeowner’s insurance. However, title insurance isn’t about insuring the dwelling but rather about insuring the land your dwelling is on. Owners Title Insurance is coverage for the owner of the real property, usually issued in the amount of sales price. Owner's Title Insurance covers improperly executed documents, undisclosed restrictive covenants and unmarketable title just to name a few. Lender’s Title Insurance covers the lending institution for the amount of the loan and is generally a requirement of the loan. Lender's title Insurance covers things like improperly executed documents, defective recording of documents, and liens not disclosed in the policy among others.

In my next couple of posts I'm going to follow a real estate closing file from the time it arrives at the title company through the issuing of the title policy, along with giving tips and hints that you can do to help make the process smoother. I'll also try to include any questions that you may have, so feel free to leave comments or send me your questions.