The Title Company; It's About More than Insurance (Part IV)

*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.