The decision to close or not to close your real estate transaction at a title company
In our previous article we discussed the importance of drafting and negotiating the terms of the earnest money contract since it is going to be the road map for the rest of the transaction. If all parties take time to fully discuss and negotiate all issues and expectations they can look forward to a smooth transaction.
If you are obtaining a loan from a bank or mortgage company they will require you to have title insurance and the real estate transaction will close at a title company. However, if the seller is owner financing or if the party is paying cash, the decision is up to buyer and seller.
If you are using a realtor, the realtor will usually collect the check for the earnest money, which is made payable to the title company from the purchaser. The check and the earnest money contract will go to the title company agreed upon in the earnest money contract. Many realtors develop relationships with title companies because of their involvement in closing so many real estate transactions. The role of the title company is to work with all parties to get the transaction closed, and to be neutral and not an advocate for anyone other than the underwriter insurance company they represent. If the transaction does not close, usually neither the realtor nor the title company will receive any compensation.
Once the title company receives the earnest money contract they begin their research, and when it is completed they provide all parties with a “title commitment.” The title commitment states the results of their research, who owns the property and provides all instructions and requirements to close the real estate transaction. An example of such instructions include requesting probate procedures be completed if any of the previous owners died and no probate procedures were completed to transfer their interest in the property to the current owner. This is true even if the deceased prior owner is a spouse of the person selling the property. The title commitment can include many other instructions which are too numerous to list. Once all of the requirements and instructions are met, the closer will coordinate with all parties a time and date to meet and sign the necessary paperwork. Once all parties have signed the documents the title company will send them to the real property records to be recorded.
Many times people will make the decision that they do not want to close at a title company because they believe they pay many unnecessary expenses. To some degree that can be true as there are some title companies who charge many small fees for this and that and those fees eventually add up and considerably increase the cost. This seems particularly true on small transactions.
The most important reason to obtain title insurance is to assure when you purchase the property that no one else has any interest in it and it is not subject to any type of liens. The title company will perform the necessary research to determine whether the party selling it has the authority and ability to transfer 100% of the interest of the property free of liens and any other type of claims from anyone else. The title policy does not cover every aspect of the transaction, because there are exceptions listed in the insurance policy the same as all other insurances.
However, in my opinion obtaining title insurance on all transactions is most important to protect the buyer and the seller. It continues to amaze me that people will go out and buy a big screen television but they do not want to spend that amount or a little more to protect their home or other property they are purchasing, since this is probably one of the largest investments they will ever make. I think that is because they do not appreciate the risk of purchasing property without it.
I have seen many disasters from transactions that were closed without title insurance and personally would never purchase property without title insurance. I work with many people to correct many problems that would have been discovered had they purchased title insurance. Sometimes the problems can be resolved quickly and easily, and therefore inexpensively, but often they are much more involved and time consuming and resultingly very expensive.
All title companies are not the same and it is best to ask your realtor, attorney or other professional working in the area for a referral to a title company. Some have been in business a very short time and their staff is not very well trained. Others have been in business a long time and have very experienced staffs, which usually results in a quicker transaction.
Some title companies are more conservative in what risk they are willing to insure and will require the parties to take more action required by the law. Many people ask me, “if I have complied with the law, how can the title company require me to take further action?” The answer is, because they are accessing and insuring the risk involved and as a business decision they decide they do not want to insure that particular risk. In these situations it is usually best to try to locate a title company that is less conservative and move the closing to that particular title company. These are things that your realtor, attorney and other professionals working in this area can help you evaluate.
There are some other things you can do to research the title of the property that cost less than actually purchasing title insurance, which is better than taking no action. But as a result of my experience working in this area for many years and working to resolve so many title issues, I recommend everyone buying or selling property to go through a title company.