Ray Hankamer, REDNews Contributing Writer
I have always wondered what goes on at the title company between the time I open escrow with a contract and the day the title company issues its Title Report and Title Commitment. So, with the help of Sue Jacobson of Chicago Title, here is the result of my research:
An order for title insurance is submitted to a title company, in the form of either an executed contract and earnest money or a request from a lender that is handling a loan application.
The escrow office sends out the receipted contract (or acknowledgement that the order has been opened) to the parties, along with preliminary information (such as the file number, the names of the persons who will be handling the transaction, etc.) and may also request information that will assist in processing the file (request for information to obtain pay-offs, request for documents that establishes an entity’s existence and authority to act, etc.). The escrow officer is the person primarily responsible for handling the transaction.
Then title to the property is examined. The first step is to actually identify (or locate) the property that is the subject of the order. If there is any confusion about which property is involved, the escrow office is requested to obtain further information.
(Title companies take the records in the County Clerk’s Office and rearrange them so it is easier to find those that affect a certain tract of land. This geographic re-arrangement of documents from the real property records is called the “title plant”.)
The title company searches its title plant to find all the documents that affect the piece of property. This research includes seller, record owner, prior owners, etc.
The plant analyzes & evaluates pertinent documents of record for determination of ownership, legal descriptions & encumbrances/liens affecting the property.
Encumbrances usually impact the transferability of the property and can restrict its free use. Examples are tax or M & M liens, deed restrictions, easements, mortgages, and encroachments.
The title examiner produces a document called the Commitment for Title Insurance. The Commitment is a contract between the title company and the insured (owner or lender) to issue the title insurance policies for the transaction. The Commitment is comprised of three parts. Schedule A identifies the property to be covered by the title insurance policy and which parties will be insured. Schedule B identifies the pre-existing conditions that affect the property and that cannot be changed (such as restrictions on the use of the property, and the rights of others in the property, etc.). Schedule C sets out the requirements that must be met before the policy of title insurance can be issued (such as liens to be paid off, information necessary to determine who the owner of the property is, etc.).
The examiner:
- recognizes the title defects and formulates curative requirements within company guidelines.
-reviews surveys, probates, divorces, bankruptcies, tax suits, lawsuits, trusts, business entity documentation, attorney objections letters, etc. as necessary.
- assesses risks and liabilities and brings them to the attention of regional underwriters
- produces a title commitment & submits it to the branch/closer staff along with supporting documentation.
- works closely with the escrow staff & customers in order to meet time requirements for options, feasibility periods & closing deadlines.
The escrow office of the title company sends the Commitment to the parties to the transaction (buyer, seller and lender) and others who may be involved, such as a surveyor (very important) realtors, and attorneys representing the parties. The escrow office works with everyone involved in the transaction to make sure that all requirements of the contract and lender’s instructions and the Commitment are met.
When the escrow office has determined that each issue has been dealt with so that the policies can be issued in accordance with the contract and the instructions given, then the closer prepares to complete the transaction.
The closer is a neutral third party whose function is to make sure that everyone provides what they are supposed to provide (executed documents, money, etc.) in order to complete the transaction. The closer develops a closing statement, showing the charges and credits to each party based on information from the contract and the lender and as the parties may have agreed between themselves. The closer also assembles all the documents that must be executed to complete the transaction.
Arrangements are made for the parties to perform all actions necessary to complete the transaction (such as executing documents, tendering money, providing other items required by the contract or letters of instruction< etc.). Once the closer has received everything needed from the parties to the transaction and has verified that all conditions for the use of those items have been satisfied, the transaction is deemed to be “closed”.
*Immediately after the transaction has “closed” the closer makes sure that the money collected in the file is paid to all parties entitled to receive it, and records in the County Clerk’s Office the documents which give notice to the public that the transaction has occurred.
The policies for title insurance are issued shortly after the documents are recorded. So this is the sequential order of what is done leading up to a closing.
The history of a tract of land is ongoing, and may include affidavits, liens, foreclosures, tax sales, divorce settlements, probate files, mortgages, mineral rights issues, all of which need to be found and recognized during the title search. Sometimes legal documents confirming the above issues are inadvertently not filed or filed improperly, and in such case the diligence of the title company is especially important to protect the buyer and the title company itself.
Raw land transactions may have discrepancies in the surveys. Improved property may have Homeowner Association regulations, subdivision restrictions, or neighborhood guidelines which are not immediately apparent. The seller may have forgotten to disclose these to the prospective buyer, and they may be important to him.
Immediately before closing, the closer conducts a final update to verify nothing has changed which would affect the passing of title to a new owner.
A neutral closer / title company can give reassurance to the parties and their brokers where mutual trust may not be 100%.
“Fee Offices” are attorneys who represent title companies and who can close transactions and deliver title insurance. These are different from “Direct Operations” where the parties deal with the title companies direct. Fee offices often exist in remote, small town areas, but can also exist in major markets.
Here’s hoping we have answered some of the questions you have always had about title companies, and their value to your real estate transactions!
Reprint from Rednews.com
Ray Hankamer, REDNews Contributing Writer