Generally, our work begins when we are asked to insure a refinance or sale transaction. For a sale, the request will usually come from a real estate agent. For a refinance, a lender or mortgage broker will make the request.
Our involvement does not mark the beginning of the process – a buyer has already decided to make a purchase (and he or she is already under contract). A borrower has already decided to borrow and the chosen lender has agreed to make a loan. Because we enter transactions mid-stream, our success turns on our having good working relationships with the primary “sources of business” – attorneys, builders, developers, lenders and real estate agents.
WHAT WE DO…
We offer products including – (i) owner’s title insurance policies; (ii) lender’s title insurance policies; (iii) O&E reports; and (iv) marketing materials.
Owner’s Title Insurance Policy
An owner’s title insurance policy (“OTP”) insures a buyer of real property that at the time of purchase the buyer (i) has legal access to the property; (ii) is the owner of the property and no one else has a claim of ownership. The OTP further assures that (iii) the property is free and clear of liens, except those that may be created by the buyer at or after the time of purchase (e.g., a mortgage lien in favor of the buyer’s lender); and (iv) there are no title defects that would affect future marketability.
An OTP does not insure the buyer against all of the risks associated with ownership of real estate. For example, it does not cover destruction of improvements by fire (hazard insurance) or flood (flood insurance). Nor does the OTP protect against loss of the property by foreclosure if the insured stops making mortgage payments. And the OTP is further limited by exclusions set forth on the policy jacket and specific exceptions related to the property.
Lender’s Title Insurance Policies
A lender’s title insurance policy (“MTP”) insures the lien position of a lender’s mortgage 1 (deed of trust).
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We offer services including – (i) closing services for sale transactions and loan-only (e.g., refinance) transactions involving both residential and commercial real estate; and (ii) continuing education classes.
Closings are usually semi-formal, friendly events involving the signing of documents and the exchanging of funds. Most closings are attended by the principals (the borrower, or the buyer and seller) and take place in one of our offices, but we can and do accommodate power of attorney, mail-out and pre-signings. An average closing takes between ½ and 1 hour.
For a sale transaction a buyer pays the purchase price to the seller and in exchange, the seller signs and delivers a deed to the buyer. We receive and disburse the buyer funds and collect and record the deed. For a refinance transaction, a lender loans money to a borrower and in exchange, the borrower gives the lender a lien (deed of trust) against the borrower’s property. We receive and disburse the lender’s funds and record the deed of trust.
Three important documents govern all of our work related to closings – (i) the title commitment; (ii) the purchase contract (for sale transactions); and (iii) lender instructions (for refinances or sales involving lender financing). Collectively, these documents tell us everything we need to know about a transaction.
The commitment tells us what liens we must pay off and what other matters we need to address in order to insure the buyer and/or the buyer’s (or borrower’s) lender. It also instructs us as to the title fees we must collect. A contract tells us the purchase price, the deed form and the preferred manner of holding title. It tells us what personal property will be transferred. It tells us how to allocate closing costs and what and how to prorate. Lender instructions tell us what lien position to insure and what loan policy endorsements are required. They instruct us as to the loan amount and the fees that must be paid in conjunction with the loan.
Leading up to closing and based on the applicable governing documents, we obtain those items necessary to satisfy commitment requirements, we prepare settlement statements showing payments, prorations and proceeds related to the transaction; and (for sale transactions) we prepare the necessary real estate documents. If a lender is involved in the transaction, the lender prepares the loan documents.
WHO WE ARE…
Title Examiners examine county public records related to real estate titles and generate title commitments that set forth the requirements that must be satisfied to issue title insurance owner and loan policies.
Escrow Officers (a/k/a Closers) collect documents and information necessary to satisfy the requirements set forth in title commitments; prepare documents (in accordance with purchase and sale agreements) necessary to transfer title from sellers to buyers; prepare an accounting of funds involved in refinance and sale transactions; and preside over closings.
Sales Representatives solicit business from those who originate transactions that we close and insure (e.g., attorneys, builders, developers, lenders and real estate agents).
1. Why would a lender care about lien position? A mortgage empowers the lender to foreclose on the mortgaged property if the borrower fails to perform in accordance with the terms of his or her loan. Foreclosure involves the termination of the borrower’s rights of ownership and the sale of the property in order to satisfy the debt obligation.
If a lender must foreclose, a third party may purchase the property at the foreclosure sale (Auction). In such a case, the lender recoups its loan proceeds immediately. As a practical matter, most foreclosures end with the foreclosing lender owning the property. In that case, the property must be listed and sold before the lender recoups its loan proceeds. There are various costs associated with resale – (i) ongoing property maintenance costs such as taxes, insurance and repairs; (ii) marketing; and (iii) the payoff of any liens of higher priority. If a lender forecloses on a “first” position lien and winds up with the property, it could resell without any costs other than maintenance and marketing.
Lien position is established by the order of recording (in the county records) of liens encumbering property. To insure first lien position, we must discharge all existing liens encumbering the property and address potential liens that could attain a higher priority by operation of law (e.g., mechanics’ liens). We do not necessarily insure first lien position. If a borrower has two or more secured loans, only one can be insured in first position. A loan policy insuring second position assures that lender that upon foreclosure, there would be only one lien of higher priority.