A “closing” is where we meet with some or all of the following individuals: the Seller, the Seller’s agent, the Seller’s attorney, your attorney, a representative from the lending institution and a representative from the title company, in order to transfer the property title to you. The P&S you signed describes the property, states the purchase price and terms, sets forth the method of payment, and usually names the date and place where the closing or actual transfer of the property title and keys will occur.
If financing the property, your lender will require you to sign a document, usually a promissory note, as evidence that you are personally responsible for repaying the loan. You will also sign a mortgage or deed of trust on the property as security to the lender for the loan. The mortgage or deed of trust gives the lender the right to sell the property if you fail to make payments.
At closing, you will be required to pay all fees and closing costs in the form of “guaranteed funds” such as a Cashier’s Check. Your agent or attorney or escrow officer will notify you of the exact amount at closing.
What is an Escrow Account?
An escrow account is a neutral depository held by your lender for funds that will be used to pay expenses incurred by the property, such as taxes, assessments, property insurance, or mortgage insurance premiums that fall due in the future. You will pay one-twelfth of the annual amount of these bills each month with your regular mortgage payment. When the bills fall due the lender pays them from the special escrow account. At closing, it is usually necessary to pay enough into the account to cover these amounts for several months so that funds will be available to pay the bills as they fall due.
The Title Process
The home buying process is, by its very nature, a complex transaction. Title Insurance is an important part of the real estate transaction since it insures you that all liens placed against the prior owners of the property, or documents that will restrict your use of the property, have been fully disclosed to you.
A Preliminary Title Report provides you with an opportunity to review any impediments that would prevent clear title from passing to you.
When reviewing a Preliminary Title Report, it is important to check the extent of the ownership rights or interest you will be acquiring. The most common form of ownership interest is ‘fee simple’ or ‘fee,’ which is also the highest form of interest an owner can have in real estate. Liens, restrictions, and interests of others will be listed numerically as exceptions in the report.
You may also have to consider interests of third parties, such as easements granted by prior owners, which limit use of the property. Some buyers attempt to clear these unwanted items prior to purchase. A list of standard exceptions and exclusions not covered by the title insurance policy is also attached. This section includes items the buyer may want to investigate further, such as laws governing building and zoning
What Is Title Insurance?
Title Insurance insures owners that they are acquiring marketable title to the property. Unlike casualty insurance policies which insure against future events, title insurance is designed to eliminate risk or loss caused by title defects from past events. Title insurance provides coverage only for title problems that were in existence at the time the policy was issued.
A title insurance policy is a contract of indemnity that guarantees that the title is as reported. If it isn’t, and the owner is damaged at a later date, the title policy covers the insured for loss up to the face amount of the policy.
What Is A Title Search?
Issuing a title insurance policy is an extensive and exacting process. Title insurance companies work to eliminate risks by performing a painstaking search of the public records, or the title company’s own “plant”, where public records, laws, and court decisions pertaining to the property and the parties to the escrow are maintained. This is done to determine the current recorded ownership, recorded liens or encumbrances, and other matters of record which could affect the title to the property. Once a title search is complete, the title company issues a Preliminary Title Report detailing the current status of title.
What Is A Preliminary Title Report?
A Preliminary Title Report contains vital information which may affect the willingness and the ability of the parties to close an escrow. Information includes ownership of the subject property, the manner in which the current owners hold title, matters of record which specifically affect the subject property or the owners of the property, as well as a legal description of the property and an informational plat map.
The Preliminary Title Report indicates the type of title insurance to be offered by the title company, and the exclusions and exceptions from coverage based on the type of title insurance policy the company intends to issue. Exclusions and exceptions can include items such as: recorded deeds of trust, easements, agreements, and covenants conditions and restrictions, commonly referred to as CC&Rs.
What Should Be Looked For In A Preliminary Title Report?
Your attorney will review the Preliminary Title Report as soon as it is issued, paying particular attention to the following items:
What Is Covered?
Not all risks can be eliminated by a title search, since certain “hidden defects”, such as forgeries, identity of persons, incapacity, incompetence, and failure to comply with the law, cannot be disclosed by an examination of the public records. While the Preliminary Title Report is an offer to insure under certain circumstances, the Title Insurance Policy is a contract, providing coverage against such “hidden defects.”
In addition to indemnifying the insured against losses which result from a covered claim, the policy also provides for legal fees and defense for future claims against the property.
Extended owners’ and lenders’ policies of title insurance provide broader coverage and are available through the American Land Title Association (ALTA). Coverage is extended to certain matters that are “off-record”, but which are generally discoverable by an inspection of the property or by questioning the parties in possession. These include:
ALTA policies are available for owners and lenders, and a “plain language” ALTA Residential Policy is also available for residential property containing one to four units.
Agents, buyers, and sellers should not assume that all title insurance policies and title companies are the same. They aren’t, and it is important to ask questions of your title company to determine the type and cost of coverage available.