FAQ's: Step 8 to Finding Your Home: Clear Title

Before the sellers get your money, the settlement firm handling your closing has to make sure the sellers really do own the house. 

So the lawyers at the title company do several things to ensure everything is in order:

• They send someone to the local recorder of deeds to do a history of the ownership.  While this is usually routine and non-problematic.  But if the house is in an estate, foreclosure or other unusual situation (at least unusual for DC) there could be title issues that need to be resolved.
• There will be a survey done to make sure that the house and fence are on the lot your are buying, and that the neighbor's house and fence do not encroach on your new lot.
• They run everything by the title insurnace company who has to approve the title search before they will issue a title insurance policy.
• They look for unpaid leins and work to get them cleared up before settlement.

One of the larger items on your HUD-1 form will be for title insurance.  If you are getting a mortgage, your lender will require that you purchase title insurance for the amount of the mortgage.  You will have the option of buying owners' coverage as well that will protect the equity you will have in the home, including your down payment and any appreciation in your home's value over the years. 

What exactly does it insure against?  Here are the basics:

• Human error, not only for the guy who does the actual record search downtown, but for mistakes in the office downtown where the records are kept.  This particular office is sort of Human Error Central.  It is, after all, the DC Government.  All of the employees are not incompetent, but I wouldn't stake my real estate license on the accuracy of their files.
• Fraud, as in the case where the seller brought his secretary in to sign as his wife.  This doesn't happen too often these days because the lawyer asks for photo ID. 
• Fraud on the part of the settlement attorney, which is rare, but there was one guy here in DC who wound up in the Real Estate Lawyers wing of Allenwood Federal Penitentiary, leaving behind a trail of funky settlement records.
• In some cases, bancrupties, divorce or deaths can create complications when, after you thought you bought a house, someone shows up with a legitimate claim to the place.  

Owners' title insurance is sort of like the emergency equipment on a big airliner.  You will probably never need that oxygen mask or the life vest tucked under your seat, but if you do need them, you will really them!  Only about 1 percent of the people who buy owner's title insurance ever have to file a claim, but when they do, it's serious stuff.