Title Report

The Title Company at Work

Posted on March 8, 2009 at 4:06 am

The title company is an integral part of the mortgage loan process. The title search and title insurance commitment certify that the borrower or buyer will truly own the subject property clearly and cleanly. To accomplish this certification, the title company will examine the ownership and lien records about the property:
1. Analyze the description. The title company will analyze the legal description to the property to ensure that the property actually does exist where it claims to exist. More to the point, the title will serve to assure the buyer or lender by confirming the subject property.
2. Trace the succession of ownership. The title company will also examine how ownership of the land has been transferred from the first legally recorded owner of the property down to the current owner. This is often called the chain of title. The title company will ensure that there were no questionable breaks or interruptions in the succession of ownership—which may jeopardize the real ownership status of the current owner.
3. Review the restrictions against the property. The title company will then review and report all unreleased restrictions against the property, such as recorded encumbrances, easements and liens. Once the title company has completed its search and examination of public records, it will describe its findings to the person or company who ordered the title search. The title company will then issue a commitment to insure its discoveries. The title insurance does not go into effect until the title insurance premium is paid, which usually occurs during the loan closing. In most mortgage transactions, the title insurance company usually issues two separate types of insurance coverage:

  • Owners policy. With most purchases, the seller will pay for this portion. With refinances, it is normally the buyer’s responsibility.
  • Lenders policy. With both purchases and refinances, the borrower will normally be responsible for the cost of the lender’s title insurance coverage.

The title insurance premium is a one-time charge and varies according to the title company. The title insurance protects the owner and lender against possible losses from title-related problems. For example, consider the hypothetical situation of a Native American tribe winning a claim in court that a person’s house is on top of their ancestral burial grounds and the court orders the homeowner to surrender the property. The title insurance would protect the homeowner by either (1) paying the tribe for the land or (2) paying the original mortgage amount plus down payment and losses to the current owner.

Tags:

Local Records Office

Posted on March 8, 2009 at 4:04 am

Throughout most of the United States, property titles are recorded and maintained by the local county government. The records office primarily records four title elements with every property:
1. Transfers. Whenever the property is sold or the ownership identification is altered, the records office will update the title ownership.
2. Liens. Claims against the property, such as mortgage, tax and contractor liens, are recorded against the property—with proper documentation that the lien can be recorded.
3. Restrictions. The ownership and use of the property can be restricted with legally recorded encroachments, easements, lease agreements and covenants.
4. Releases. Liens and restrictions against a property can be legally removed with a formal release, properly authorized by the lien holder or legal authority behind the restriction. For each instance of recording any of the above items, the records office will normally charge a recording fee. This fee will vary from county to county. For more information, see the “Recording” article in the “Real Estate In- Depth” section.

Tags:

Claims

Posted on March 8, 2009 at 4:03 am

Lenders and property buyers have the same concern with regard to the title. They want to make sure that it is clean and defect-free, or at least reasonably clear. Mortgage lenders and property buyers will seek to avoid all encumbrances that may affect their interest in the title. The first mortgage lender wants to be sure that it has the first lien position (after the real estate taxes) on the title; the second mortgage lender wants to ensure that it has the second lien position. Liens, easements, deed restrictions and other encumbrances against a property restrict how property can be handled, owned and transferred. Thus, if the property owner owes taxes or has defaulted on a loan, a lien for that debt can be recorded against the property. The “Marketable Title” article discusses this issue in depth. If the current owner does not or will not eliminate these liens, he or she may still be able to sell it. But it would be difficult. The new buyer would have to agree to accept the existing liens and encumbrances. If the new buyer will be using a mortgage loan to buy the property, the first mortgage lender will normally require that all liens be paid off before or at the closing. Claims against the property, such as liens, follow certain rules:

Legal recording of liens
Legitimate liens are legal regardless of whether they are recorded or not. However, liens will not carry any weight against the property unless recorded with the local governing authority, which is usually the county records office. Moreover, there are often time limits as to how long a unrecorded lien is valid and recordable. Anyone may record a lien against another person’s property, as long as the current property owner has legally agreed to the lien. For example, most home improvement contracts contain a clause allowing the contractor to record “mechanics & materialmen” lien if the home owner fails to pay the bills.
Order of liens
Property liens are normally recorded and satisfied in chronological order: “first come, first serve.” A first mortgage loan, for example, holds the first lien position against a property. A second mortgage loan is recorded in the second lien position. When a property is sold, all the funds will pay off the first lien debt; any funds remaining will then be used for the next lien, etc. The exception, of course, is the government. Taxes owed to the government normally take primary lien in effect, the government always cuts to the front of the line. First mortgages always want to be first in line—i.e., they want to have first lien. If other liens already exist when a homeowner applies for a first mortgage loan, the borrower must satisfy or subordinate the other liens.
Thus, if a homeowner has both a first and junior mortgage but refinances only the primary mortgage, the junior mortgage must be subordinated to the new first mortgage. The lien subordination agreement (issued by the junior mortgage to be subordinated) will then be recorded into the county records so that the new order of liens becomes official.

Tags:

Analyzing the Title Report

Posted on March 8, 2009 at 3:51 am

The title records the legal ownership of a property and the claims against it.
Ownership. The title identities the current owners of a parcel of property.

Claims. As important as the ownership, the title also identifies any claims against the property. During the mortgage process, two institutions are normally involved in coordinating the ownership and claims against a property:
1. Local records office. The records office, usually a department of the county, is responsible for recording a property’s title ownership and claims against the property.
2. Title insurance company. The title is normally inspected through the title insurance commitment, usually provided by the title insurance company or the seller’s attorney.

Mortgage lenders always want to ensure that before they finalize and close the loan, they will have a clear and unimpeded lien on the property. Buyers will also want to ensure that the title is clear of unnecessary or damaging restrictions. A sample copy of a title insurance commitment is available to support this article.
This article only provides an introduction to some of the title issues that underwriters must analyze, with regards to the title. More detailed information can be found in the “Marketable Title” and “Title & Title Insurance” articles.

Tags:

Top