Title Process

Buying or selling a home is, for most people, the largest financial endeavor they will ever undertake. You need to secure the professional services of a title company to efficiently and accurately handle this complex transaction.

The title company will perform an "abstract of title," which means searching the real estate records in the county where that particular piece of property is located. An abstract will determine the legal owner of the property; reveal any mortgages, liens, judgments, or unpaid taxes that will have to be satisfied before the property is conveyed; and detail any existing easements, restrictions, or leases that affect the property.

After the abstract is completed, the title company will issue a "title opinion letter," or if a title insurance policy is to be issued on the property, the company will prepare a "commitment of title insurance" to the lender and/or the prospective buyer. The title opinion letter and the title insurance commitment will each set forth all things that need to be completed and any problems that need to be corrected before the purchaser can receive "good title." The title insurance company will complete all the necessary documents and will undertake to correct any problems. Once these matters are completed, the parties are ready to exchange paperwork and "close" the deal.

The purpose of the closing is to sign and exchange all the documents necessary to convey title, secure the lender, and deal with collateral issues such as leases, rights-of-way, etc., and to explain in an orderly manner the costs to each party.  This process involves preparing a closing statement or what is referred to in the industry as a "HUD 1."  The closing statement will include the mortgage lender’s charges, charges for preparing documents, the title company’s fees, recording costs, and the amount of the payoffs to release any existing mortgages, pro-ration of city and county taxes, real estate commission fees, survey fees, and any other costs associated with the deal.

At closing, the title company will collect the purchase money funds from the buyer and lender as well as the settlement costs from each party. With these funds, the title company then pays all of the expenses of the transaction, pays off any existing mortgages, and pays the seller the net proceeds of sale. All of this is done in accordance with the HUD 1 settlement statement.

After the closing, the title company will record the legal documents (deed, mortgage, assignments, etc.) at the county courthouse and then return the original documents to the correct party. New owners receive their deed which should be stored in a bank lock box or other secure location. The lender receives the original mortgage documents which they hold until the loan is paid in full. Once the loan is paid, the lender will "release" their lien against the property at the courthouse and will forward the original mortgage documents to the home owner.

 

 

Terms

Closing/Settlement: This is the process in which all parties sign applicable documents to finalize the transaction and where funds are paid out. Prior to disbursing any monies, all requirements by Federal Regulations, HUD, RESPA, Tennessee State Law, Lending Institutions, Title Insurance Underwriters, etc. must be completely satisfied.

Declarations Page: This is written proof of coverage provided by your homeowner’s insurance agent. Concord Title is required to forward this document to your lender so the pre-closing process can be complete. Without this step, we are unable to receive instructions for closing or a closing package.

Defect: This is any possible or patent claim or right outstanding in a chain of title that is adverse to the claim of ownership. Any material irregularity in the execution or effect of an instrument in the chain of title.

Document Preparation: This is a charge that covers the preparation of all documents used in the process of closing. We receive, organize and complete documents for all parties involved. Any pertinent documents prepared by another party are subject to review and approval by our insurance underwriters prior to closing.

HUD Settlement Statement: This document is one of the most important documents you will execute regarding your transaction. All charges involving all parties must be explicitly outlined on the HUD Settlement Statement. Failure to follow these guidelines could be fraudulent. The lender bases the approval of a loan on income, debt, assets, credit scores, etc. Proceeds from sale transaction may be subject to IRS taxation. Most real estate agents are required to submit a copy of this statemen to their accounting offices with respect to their compensation.

Identification: The title company is required to obtain copies of at least one valid photo I.D. to ensure the identity of each individual executing documents.

Mortgagee Clause: This is the lender’s address that is provided to the hazard insurance company for their policy purposes.

Overnight Courier: This is an expense the title company’s office incurs when they are required to ship overnight documents. Per title underwriting and lender underwriter guidelines, we are required to ship closing packages, payoff disbursements, legal documents, closing proceeds, etc. via overnight delivery for tracking and delivery confirmation purposes.

Owner’s Title Insurance: The premium of the owner’s title insurance is calculated upon the sales price (or loan amount if higher than sales price). Title searches are valid for a short period of time; therefore you have 30 days after closing to purchase owner’s title insurances at the rate provided on the Notice and Waiver. After 30 days, a new title search must be completed, and the full premium would be due.

Power of Attorney: This document allows a person to appoint someone to execute documents on his or her behalf. A Power of Attorney must be approved by both the title company’s underwriter and the lender’s underwriter. Typically, only Specific(or Limited) Power of Attorney will be allowed and can only be used for the specific purpose of the transaction. We highly suggest that you do not use a Power of Attorney unless it is absolutey necessary. For sellers that are using a Power of Attorney, we will provide as many closing documents as possible to be executed along with the POA.

Quit Claim Deed: This is the legal document that the current owner signs and is generally used to add someone to title (a newly married couple), remove a person from title (per Final Decree of Divorce) or transfer property between family members. Tax is not paid on this type of transaction at the Registers Office.

Subordination Agreement: This document is executed by a current lienholder who agrees to maintain or change his or her position, or place in line, so to speak, in which their loan is secured. Liens recorded first take priority over liens recorded at a later date. In the event of a foreclosure, the lien holder in “first” position will have the opportunity to receive compensation first. Second position has the next opportunity to receive compensation from any equity remaining, and so on. For each loan that is paid off, the other lien holders move up in position. A Subordination Agreement means the lienholder has agreed to give another lienholder his or her position in the event of a foreclosure.

Warranty Deed: This is the legal document the current owner signs to convey title. A Warranty Deed will place the title to the property into the name of the new owners and is subject to tax on the sales price at the Register’s Office.

 

FAQ

More than 600 million dollars per year in claims are paid out by the title industry.

Fact: According to the American Land Title Association one in four real estate transactions uncover a title problem of some sort.

Title Issues: Forged documents, invalid deeds, incorrect property descriptions, recording errors, deed indexing errors, unpaid mechanics’ liens, judgment liens, income tax or property tax liens, undisclosed easements, claims of missing heirs, and claims by ex-spouses.

Cost of a Policy: A premium is about ½ to 1% of the purchase price. The premium is based upon the following factors: 1. The cost of searching and examining the title to subject properties. 2. The cost to resolve or clear defects to title. 3. The costs covering title defects, including legal fees.

Types of Title Insurance
There are two types of title insurance: Lenders title insurance, also called a Loan Policy, and Owner’s title insurance. Most lenders require a Loan Policy when they issue you a loan. The Loan Policy is usually based on the dollar amount of the loan. It protects the lender’s interests in the property should a problem with the title arise. The policy amount decreases each year and eventually disappears as the loan is paid off.

Owner’s title insurance is usually issued in the amount of the real estate purchase. It is purchased for a one-time fee at closing and lasts as long as you or your heirs have an interest in the property. This may even be after the insured has sold the property. Only Owner’s title insurance fully protects the buyer should a problem arise with the title that was not uncovered during the title search. Owner’s title insurance also pays for any legal fees involved in defending a claim to your title.

How Am I Protected?
In order to issue title insurance, the title company must search public land records for matters affecting that title. Many search the “chain” of title back 50 years. Twenty-five percent of title searches find a title problem that is fixed before the insurance is issued. Some examples of items that can cause a problem are: deeds, wills and trusts that contain improper information, outstanding judgments or tax liens against the property and easements. Title companies fix the problems then issue the title insurance.

Occasionally, despite an exhaustive title search, hidden hazards can emerge after closing. Items such as mistakes in the public record, previously undisclosed heirs claiming to own the property, or forged deeds could cloud the title. Owner’s title insurance offers financial protections against these by negotiating with third-parties, and paying claims and the legal fees involved in defending the title.


I’m Refinancing, Why Do I Need Title Insurance? When you refinance you are obtaining a new loan, even if you stay with your original lender. Your property will require lender’s title insurance to protect their investment in the property. You will not need to purchase a new owner’s title policy; the one you bought at closing is good for as long as you and your heirs have an interest in the property.

Even if you recently purchased or refinanced your home, there are some problems that could arise with the title. For instance, you might have incurred a mechanics' lien from a contractor who claims he/she has not been paid. Or you might have a judgment placed on your house due to unpaid taxes, homeowner dues, or child support, for instance. The lender needs reassurance that the title to the property it is financing is clear.

If it has been no more than ten years since you bought your house or refinanced, ask for a reissue or discount rate. They are not available in every state, and you might have to meet some criteria to be eligible, so be sure to ask.

I’m Buying a Newly Built Home, Do I Need Title Insurance? Construction of a new home raises special title problems for the lender and owner. You may think you are the first owner when constructing a home on a purchased lot. However, there were most likely many prior owners of the unimproved land. A title search will uncover any existing liens and a survey will determine the boundaries of the property being purchased. In addition, builders routinely fail to pay subcontractors and suppliers. This could result in the subcontractor or supplier placing a lien on your property. Again, lenders want to be sure the property has clear title, and that they are insuring the correct property. Purchasing owner’s title insurance will protect you against these potential problems and pay for any legal fees involved in defending a claim.

Common Title Problems

Here are three short stories on some common title problems:

Fraud & Forgery  – Those involved in real estate fraud and forgery can be clever and persistent which can spell trouble for a home purchase.

In a western state, an innocent buyer purchased an attractive home site through a realty company accepting a notarized deed from the seller. Then another couple, the true owners of the property – who lived in another locale – suddenly appeared and initiated legal action to prove their interest in the real estate was valid. Under the owner’s title insurance policy of the innocent buyer, the title company provided a money settlement to protect against financial loss. As it turned out, the forger spent time in advance at the local court house searching the public records to locate property with out of town owners who had been in possession for an extended period of time. The individual involved then forged and recorded a deed to a fictitious person and assumed the identity of that person before listing the property for sale to an innocent purchaser. Also, the identity of the notary appearing on deeds was fictitious as well. Fraud and forgery are examples of hidden title hazards that can remain undetected until after a closing despite the most careful precautions. Although emphasizing risk elimination, an owner’s title insurance policy protects financially through negotiation by the insurer with third parties, payment for defending against an attack on the title as insured, and payment of valid claims.

Conflicting Wills  – Conflicts over a will from a deceased former owner may suggest a study topic for law school. But the subject can become a reality, and all too quickly home ownership is at stake.

After purchasing a residence, the new owner was startled when a brother of the seller claimed an ownership interest and sought a substantial amount of money as his share. It appeared that their late mother had given the house to the son that was selling the house, who placed the deed from her in his drawer without recording it at the court house. Some 20 years later, after the death of the mother, the deed was discovered and then filed. Permission was granted in probate court to remove the property from the late mother’s estate, and the brother to whom the residence initially was given sold the house. But the other brother appealed the probate court decision claiming their mother really did not intend to give the house to his sibling. Ultimately, the appeal was upheld and the new owner faced a significant financial loss. Since the new owner had acquired the owner’s title insurance upon purchasing the real estate, the title company paid the claim along with an additional amount in legal fees incurred during the defense.

Missing Heirs  – When buying a home, it’s important to remember what you don’t know can cost you.

As an example illustrating the need for precautions, ALTA pointed to a couple who purchased a residence from a widow and her daughter, the only known heirs of the husband and father who died without leaving a will.

Soon after the sale, a man appeared – claiming he was the son of the late owner by a former marriage. As it turned out, he indeed was the son of the deceased man. This legal heir dispproved of his father’s remarriage and had vanished when the wedding took place. Nonetheless, the son was entitled to a share of the value of the home which meant an expensive problem for the unwary couple that purchased the property.

Although the absence of a will hindered discovery of the missing heir in a title search of the public records, ALTA said that owner’s title insurance issued at the time of the real estate transaction would have financially protected the couple from the claim by the missing heir. For a one-time charge at closing, owner’s title insurance will safeguard against problems including those even an exhaustive search will not reveal.

ALTA reminds us that owner’s title insurance is necessary to fully protect a home buyer. Lender’s title insurance, which is usually required by the mortgage lender, serves as protection only for the lending institution.

   

Caution!

There are over SEVENTY ways to lose your home. Listed below are actual defects in title that will not be discovered by an examination of records available to the public. Title insurance is the ONLY protection against these defects.

Are you willing to take these risks?

  1. Forged deeds, mortgages, satisfactions or releases
  2. Deed by person who is insane or mentally incompetent
  3. Deed by minor (may be disavowed)
  4. Deed from corporation, unauthorized under corporate bylaws or given under falsified corporate resolution
  5. Deed from partnership, unauthorized under partnership agreement
  6. Deed from purported trustee  unauthorized under trust agreement
  7. Deed to or from a "corporation" before incorporation, or after loss of corporate charter
  8. Deed from a legal non-entity (styled, for example, as a church, charity or club)
  9. Deed by person in a foreign country, vulnerable to challenge as incompetent, unauthorized or defective under foreign laws
  10. Claims resulting from use of "alias" or fictitious namestyle by a predecessor in title
  11. Deed challenged as being given under fraud, undue influence or duress
  12. Deed following non-judicial foreclosure where required procedure was not followed
  13. Deed affecting land in judicial proceedings (bankruptcy, receivership, probate, conservatorship, dissolution of marriage), unauthorized by court
  14. Deed following judicial proceedings subject to appeal or further court order
  15. Deed following judicial proceedings where all necessary parties were not joined
  16. Lack of jurisdiction over persons or property in judicial proceedings
  17. Deed signed by mistake (grantor did not know what was signed)
  18. Deed executed under falsified power of attorney
  19. Deed executed under expired power or attorney (death, disability or insanity of principal)
  20. Deed apparently valid, but actually delivered after death of grantor or grantee, or without consent of grantor
  21. Deed affecting property purported to be separate property of grantor which is, in fact, community or jointly-owned property
  22. Undisclosed divorce of one who conveys as sole heir of a deceased former spouse
  23. Deed affecting property of deceased person not joining all heirs
  24. Deed following administration of estate of missing person, who later re-appears
  25. Conveyance by heir or survivor of a joint estate, who murdered the decedent
  26. Conveyances and proceedings affecting rights of service-member protected by the Soldiers and Sailors Civil Relief Act
  27. Conveyance void as in violation of public policy (payment of gambling debt, payment for contract to commit crime, or conveyance made in restraint of trade)
  28. Deed to land including "wetlands" subject to public trust (vesting title in government to protect public interest in navigation, commerce, fishing and recreation)
  29. Deed from government entity vulnerable to challenge as unauthorized or unlawful
  30. Ineffective release of prior satisfied mortgage due to acquisition of note by bona fide purchaser (without notice of satisfaction)
  31. Ineffective release of prior satisfied mortgage due to bankruptcy of creditor prior to recording of release (avoiding powers in bankruptcy)
  32. Ineffective release of prior mortgage of lien as fraudulently obtained by predecessor in title
  33. Disputed release of prior mortgage or lien as given under mistake or misunderstanding
  34. Ineffective subordination agreement, causing junior interest to be reinstated to priority
  35. Deed recorded but not properly indexed so as to be locatable in the land records.
  36. Undisclosed but recorded federal or state tax lien
  37. Undisclosed but recorded judgment or spousal/child support lien
  38. Undisclosed but recorded prior mortgage
  39. Undisclosed but recorded notice of pending lawsuit affecting land
  40. Undisclosed but recorded environmental lien
  41. Undisclosed but recorded option, or right of first refusal, to purchase property
  42. Undisclosed but recorded covenants or restrictions, with (or without) rights of reverter
  43. Undisclosed but recorded easements (for access, utilities, drainage, airspace, views) benefiting neighboring land
  44. Undisclosed but recorded boundary, party wall or setback agreements
  45. Errors in tax records (mailing tax bill to wrong party resulting in tax sale, or crediting payment to wrong property)
  46. Erroneous release of tax or assessment liens which are later reinstated to the tax rolls
  47. Erroneous reports furnished by tax officials (not binding local government)
  48. Special assessments which become liens upon passage of a law or ordinance but before recorded notice or commencement of improvements for which assessment is made
  49. Adverse claim of vendor's lien
  50. Adverse claim of equitable lien
  51. Ambiguous covenants or restrictions in ancient documents
  52. Misinterpretation of wills, deeds and other instruments
  53. Discovery of will of supposed intestate individual after probate
  54. Discovery of later will after probate of first will
  55. Erroneous or inadequate legal descriptions
  56. Deed to land without a right of access to a public street or road
  57. Deed to land with legal access subject to undisclosed but recorded conditions or restrictions
  58. Right of access wiped out by foreclosure on neighboring land
  59. Patent defects in recorded instruments (for example, failure to attach notarial acknowledgment or a legal description)
  60. Defective acknowledgment due to lack of authority of notary (acknowledgment taken before commission or after expiration of commission)
  61. Forged notarization or witness acknowledgment
  62. Deed not properly recorded (wrong county, missing pages or other contents, or without required payment)
  63. Deed from grantor who is claimed to have acquired title through fraud upon creditors of a prior owner

  64. An extended coverage policy may be requested to protect against such additional defect as:

  65. Deed to a purchaser from one who has previously sold or leased the same land to a third party under an unrecorded contract, where the third party is in possession of the premises
  66. Claimed prescriptive rights, not of record and not disclosed by survey
  67. Physical location of easement (underground pipe or sewer line) which does not conform with easement of record
  68. Deed to land with improvements encroaching upon land of another
  69. Incorrect survey (misstating location, dimensions, area, easements or improvements upon land)
  70. "Mechanics' lien" claims (securing payment of contractors and material suppliers for improvements) which may attach without recorded notice
  71. Federal estate or state inheritance tax liens (may attach without recorded notice)
  72. Pre-existing violation of subdivision mapping laws
  73. Pre-existing violation of zoning ordinances
  74. Pre-existing violation of conditions, covenants and restrictions affecting the land
   
ITEM