Section 9 Unit Closing Costs

Question 1

Marketing Title

Answer 1

Sellers must provide evidence of title (proof of ownership), and also prove the property is owned free and clear (subject to loan payoff, taxes owed, etc., to be cleared at closing before disbursing the sale proceeds).

Question 2

Title Commitment

Answer 2

The title commitment is provided to the lender (if the property is being financed) and to the buyer shortly after the purchase contract is signed and delivered to the title company. This document commits the title company to issuing the title insurance policy upon payment of the premium (usually at closing).

Question 3

The commitment notes the conditions under which the policy will be issued, including:

Answer 3

Payment of existing liens, including mortgages, water bills, and property taxes
Seller disclosure of any liens, encumbrances, etc., against the property that aren’t recorded publicly
Delivery of deed from seller to buyer (usually at closing)
Release of any previous deeds of trust
Receipt of an affidavit (sometimes called affidavit of title, affidavit and agreement, or something similar), which is a sworn statement assuring the title company and the buyer that no new title defects were introduced since the date of the title search (i.e., the seller wasn’t subject to judgments, bankruptcies, divorce, unrecorded deeds or contracts, or unpaid repairs or improvements on the property (that could result in a mechanic’s lien) that aren’t already accounted for in the title report) and ensures the seller has revealed any known non-public liens, easements, encroachments, etc.
The title commitment also contains the schedule of exceptions (items that won’t be covered under the title policy).

Question 4

Chain of Title

Answer 4

The chain of title establishes the path and proof of property ownership. This is done through a search for successive conveyances of title and encumbrances documented in public records. Each owner is a “link” in the chain

Question 5

Two Lists Grantor-grantee Index

Answer 5

When property transfers are recorded in the public record, the recorder updates two lists. Collectively called the grantor-grantee index, one is an alphabetical list of all the grantees, and one is an alphabetical list of all the grantors. Together, these lists establish chain of title, beginning with the current owner.

Question 6

Tracing Title chain

Answer 6

Sometimes while tracing a chain of title an apparent break or dead end will occur. This can happen for a number or reasons, including death or foreclosure. At this point, to regain the title sequence and repair the link (so to speak), the search must go beyond the recorder’s office to probate (in the case of a death) or civil courts (in the case of foreclosure). It’s very important to make sure the link is repaired because a broken link means the present owner doesn’t have a valid title and therefore doesn’t legally own the property

Question 7

Cloud on Title

Answer 7

A cloud on title is any encumbrance, such as a lien or inheritance claim, that prevents the seller from providing clear, marketable title. Clouds on title may be simple (such as unpaid taxes) and easily remedied. They may also be more complex, such as an outstanding ownership claim on the property.

Question 8

Common clouds on title

Answer 8

A simple foreclosure or inheritance claim may be resolved by having the owner sign a quitclaim deed, which releases any claim they have on the property.
More complicated clouds may be resolved through a quiet title suit, in which the property owner goes to court to attempt to remove (quiet) any claims to the property.

Question 9

Title Issues

Answer 9

Title issues happen more often with foreclosed properties, since their chain of ownership may be unclear, but they can happen for any number of reasons. In general, title issues can be a problem because:

They can make financing difficult.
They put ownership in question.
They can make it difficult to resell the property later.

Question 10

Common Title Issues

Answer 10

Errors in public records
Unknown liens
Missing heirs
Forgeries
Survey or boundary issues
Undiscovered encumbrances
Unknown easements
Boundary/survey disputes
Undiscovered will
False impersonation of previous owner

Question 11

Types of Encumbrances

Answer 11

Forgery and fraud (in connection with execution of documents)
Undue influence on a grantor or executor
False impersonation by those purporting to be owners of the property
Undisclosed or missing heirs
Wills not properly sent through probate
Mistaken interpretation of wills and trusts
Mental incompetence
Conveyance by a minor
Birth of heirs subsequent to the date of the will
Incorrect legal descriptions
Non-delivery of deeds
Unsatisfied claims not shown on record
Deeds executed under expired or false powers of attorney (defective deeds)
Confusion due to similar or identical names
Dower or curtesy rights of ex-spouses or former owners
Incorrect indexing
Clerical errors in the records
Delivery of deeds after the death of grantor

Question 12

How Did the Encumbrance Happen?

Answer 12

If a property owner recently purchased or refinanced a home, there may still be problems that could arise with the title.

Question 13

Quiet Title Suit

Answer 13

A suit to quiet title firmly establishes ownership and clears title clouds. A quiet title suit is basically a lawsuit that asks the court to decide who has claim to the property and who does not.

Question 14

Resolutions

Answer 14

Even buyers who believe a defect on the title isn’t likely to result in a loss should never buy a house with known title defects. The buyer or the lender has the power to object to the title if the title report shows a defect. At that point, the owner (the seller at this time) of the property must resolve the problem or the transaction could potentially fall through.

Question 15

Title issues can be resolved by filing one of three common documents:

Answer 15

A quitclaim deed removes an heir and clears up title among co-owners or spouses.
A release of lien/judgment removes a paid mortgage or spousal or child support lien.
A deed of reconveyance records payment of a mortgage under a deed of trust.

Question 16

Transfer of Title

Answer 16

Title officially changes hands when the deed is transferred.
Until the deed is recorded, ownership is legally in question.
Recordation timing determines priority. The first to record has priority.
Recorded documents are used by the title insurer abstractors and attorneys.
Constructive notice is the protection that recordation affords the title owner.
Actual notice is notice actually given directly to a person and received by that person.

Question 17

Title Report

Answer 17

First, insurance companies conduct a title search to determine the title’s condition. Is it clear? Are there encumbrances? This is where the title company researches the title through public records in order to provide a preliminary title report (aka title commitment or title binder) to the buyer and the buyer’s lender.

The preliminary title report does the following things:

Describes the property
Provides current ownership information
Details requirements that must be satisfied before closing
Details exceptions to coverage
Includes data about outstanding taxes or assessments, any encumbrances, and any conditions or restrictions on the property
Policies include a legal description of the property and encumbrances of record. If a buyer is obtaining financing, encumbrances must be cleared before lenders will fund the mortgage loan. If the buyer wants more than the standard title insurance policy, extended coverage policies are available for both the lender via an extended coverage loan policy, and the buyer via owner’s extended coverage (OEC).

Question 18

Good and Marketable Title

Answer 18

When buyers purchase a property, those buyers should be given a good and marketable title that says:

They’re free to occupy and use the property as they wish (within the bounds of the law).
The property is free and clear of all obligations and debts (except for the mortgage the buyers obtain to purchase it, if applicable).
The buyers can freely sell or use the property as collateral to obtain a loan.
The final owner’s title insurance policy on a specific piece of property is issued only after all liens against the property have been paid, all other requirements have been satisfied, and the seller has delivered the deed to the buyer.

Question 19

Services

Answer 19

It’s important to know what the owner’s title insurance provides. The fees associated with title insurance appears on the closing statement under “services you can shop for.”

The expected services include:

Determine whether title is eligible for insurance.
Create and issue title commitment.
Identify issues which must be resolved in order to issue title along with resolution steps necessary.
Provide a draft of insurance policies.
Order and execute a survey.
Outline fees:
	Attorney
	Recording costs
	Notary
	Title insurance premium

Question 20

Schedules

Answer 20

Prior to finalizing the title policy after the closing, the contractual agreement between the buyer and seller is referred to as a title commitment. Most states utilize the general ALTA title commitment form, which has two schedules attached. In addition to correctly identifying basic information about the property that is vested (Schedule A), the schedules list the types of title flaws that the policy won’t cover. These conditions and exceptions are listed in Schedules B-1 and B-2 of the title policy.

Question 21

Schedule B-1

Answer 21

lists requirements that must be satisfied prior to issuing the policy. Requirements that must be cleared before the title can be exchanged include clearing up the previous owner’s judgment liens and mortgages

Question 22

Schedule B-2 i

Answer 22

identifies standard exceptions, or flaws, that are not being insured in the policy. These exceptions typically include items such as current year taxes, easements of record, and restrictions shown on a plat map. They don’t need to be cleared before the property closes.