Closing Process

Question 1

be marketable (or merchantable)

Answer 1

. To be marketable (or merchantable), the title must be free from reasonable objections.
This means there are no serious defects, liens, or encumbrances clouding the title.

Question 2

A cloud on the title

Answer 2

A cloud on the title can be any item limiting or restricting ownership of the property. It could include:

• encumbrances, such as unpaid liens, liens paid but not having proof of payment, judgments, recorded or unrecorded agreements of sale, or easements for rights of way
• title defects, such as claims of interest in property by missing heirs, or breaks or gaps in the chain of title where ownership cannot be traced from one owner to the next

Question 3

The chain of title

Answer 3

is a complete record of all recorded instruments affecting the subject property traced back to the original source, which was often a conveyance from the government to a private person.
It consists of all recorded title transfers, encumbrances, satisfactions of liens, and count proceedings pertaining to the land and the owners.

Question 4

quiet title action

Answer 4

In the event people are not cooperative in removing title defects, legal action can be taken to remove the cloud. Court action taken to remove a cloud on title is called quiet title action.

Question 5

An abstract of title

Answer 5

is a digest in chronological order of the title history to a particular parcel of real estate.
It is a full historical summary of all matters affecting the title, but it provides no guarantee or insurance of title.
A person receiving an abstract will obtain an attorney’s opinion, certifying the legal nature of the title and any defects or other rights disclosed in the abstract.

Question 6

A certificate of title

Answer 6

is an opinion of the title without the title abstract.

The certificate states that the title company’s abstractor has searched the public record, studied the title records and found the title properly vested in the present owner, subject to the encumbrances cited in the certificate.

Question 7

Title registration (also known as the Torrens system)

Answer 7

may be used in a few states.
In some of these states, the purported owner may submit an abstract of title to the court and file a quiet title suit.
If the court determines that the applicant has title, the court decree and all other legal documents submitted as evidence are given to the county registrar of title.

Question 8

Title insurance

Answer 8

is the most widely used type of title evidence.
It is an instrument or document that protects insured parties (subject to specific exceptions) against loss by encumbrances, defective title, or adverse claims to title, resulting from defects in the title company’s examination of the title record and against hidden risks.
It does not cover defects arising after the effective date of the policy.
Title insurance guarantees that the insured party will be defended free of charge against all covered title claims and paid up to the amount of the policy to satisfy any valid claims.

Question 9

title insurance companies

Answer 9

Title insurance policies are issued by title insurance companies. These companies are regulated by a state insurance commissioner.

Question 10

An owner’s title insurance policy

Answer 10

is used to protect a buyer (a grantee), who receives a deed to the property upon closing, against adverse claims to the ownership of the property, except those exclusions listed in the policy.
The policy is issued in the amount of the full purchase price paid for the real property (not including the value of any personal property included in the sale).
The policy ordinarily protects only the party named as the insured party in the written policy, their heirs, and their devisees. It does not cover the lender or subsequent purchasers.

Question 11

A purchaser’s title insurance policy

Answer 11

is designed to protect a buyer (vendee) purchasing real estate under a contract for deed (or land sales contract).
This policy is issued at the time the contract is initiated in the amount of the contracted purchase price.

Question 12

A mortgagee’s title insurance policy

Answer 12

is issued to protect a lender (a mortgagee or beneficiary) whose lien is secured by the borrower’s property.
It also insures any person to whom the mortgage or deed of trust is assigned.
The policy assures them that the title vests in the borrower and that the mortgage lien has the priority required.
This policy insures the lender against loss, up to the amount of the mortgage balance; therefore, coverage lasts until the debt is paid in full, but declines as the mortgage balance is reduced.

Question 13

A leasehold title insurance policy

Answer 13

is used to protect a tenant (or lessee) who is entering into a long-term lease.
Coverage extends for the term of the lease.
The amount of coverage is for the value of the property if the lease were for 50 or more years, or for the total amount of the rent or the value of the tenant’s improvements, whichever is greater if the lease is for less than 50 years.

Question 14

The cost of a title insurance policy

Answer 14

is a one-time premium.
Coverage will protect the insured party’s interest forever (as long as they have liability) and need not be renewed.
The premium is based on the amount of coverage provided. For an owner’s or purchaser’s policy, the premium is based on the cost of the property; for a lender’s policy, it is based on the loan amount.

Question 15

Escrow

Answer 15

is the process by which a deed or other written instrument is delivered to a third person, to be delivered by them to the grantee only upon the performance or fulfillment of a certain condition.
The deposit in escrow places an item beyond the control of the depositor.
Because of this, death or future incapacity of either party in the transaction does not prevent the completion of the transaction.
A deed is considered to be delivered when placed in escrow.
Death of the grantor afterward would not affect the deed’s validity.

Question 16

an estoppel certificate

Answer 16

With a commercial transaction, there may be a tenancy statement, also called an estoppel certificate.
When signed by both the buyer and seller, this instrument prevents one party from claiming different facts from those set out in the instrument.

Question 17

A buyer’s closing statement

Answer 17

presents the buyer’s closing costs and credits in detail so that they will know what is expected of them at closing.

Question 18

The seller’s closing statement

Answer 18

provides the seller with a complete accounting of their own closing costs and credits and the amount of money they will receive from the proceeds of the sale.

Question 19

closing (or settlement) costs

Answer 19

These are moneys that the buyer and seller pay to close the transaction. What is included, the amount, and who pays, depends on the transaction and its terms, the existence of any liens against the parties or the real estate, and the type of financing to be used in the sale. In a transaction with conventional financing, the party responsible for payment of various closing costs is determined by agreement of the parties.

Question 20

Quieting a title means to

Answer 20

remove a cloud on the title by court action.

Question 21

A title plant

Answer 21

collection of real estate records