What is a Title Company?
Buying or selling a home is, for most people, the largest financial endeavor
they will ever undertake. You need to secure the professional services of a
title company to efficiently and accurately handle this complex transaction.
The title company will do an “abstract of title” which means
searching the real estate records in the county where that particular piece of
property is located. An abstract will (1) determine the legal owner of the
property; (2) reveal any mortgages, liens, judgments, or unpaid taxes that will
have to be satisfied before the property is conveyed; and (3) detail any
existing easements, restrictions, or leases that affect the property.
After the abstract is completed, the title company will issue a “title
opinion letter”, or if a title insurance policy is to be issued on the
property, it will prepare a “Commitment of Title Insurance” to the
lender and/or the prospective buyer. The title opinion letter and the title
insurance commitment will each set forth all things that need to be completed
and any problems that need to be corrected before the purchaser can receive
“good title”. The title insurance company will complete all the
necessary documents and will undertake to correct any problems. Once these
things are done the parties are ready to exchange paperwork and “close”
the deal.
The purpose of the closing is to sign and exchange all the documents necessary
to convey title, secure the lender, and deal with collateral issues such as
leases, rights-of-way, etc., and to explain in an orderly manner the costs to
each party. This is done by preparing a closing statement or what is referred to
in the industry as a “HUD 1”. The closing statement will include
the mortgage lender’s charges, charges for preparing documents, the title
company’s fees, recording costs, and the amount of the payoffs to release any
existing mortgages, pro-ration of city and county taxes, real estate commission
fees, survey fees, and any other costs associated with the deal.
At closing, the title company will collect the purchase money funds from the
buyer and lender as well as the settlement costs from each party. With these
funds, the title company then pays all of the expenses of the transaction, pays
off any existing mortgages, and pays the seller the net proceeds of sale. All of
this is done in accordance with the HUD 1 settlement statement.
After the closing, the title company will record the legal documents (deed,
mortgage, assignments, etc.) at the county courthouse and then return the
original documents to the correct party. New owners receive their deed which
should be stored in a bank lock box or other secure location. The lender
receives the original mortgage documents which they hold until the loan is paid
in full. Once the loan is paid, the lender will “release” their
lien against the property at the courthouse and will forward the original
mortgage documents to the home owner. This is when the homeowner can enjoy the
“burning the mortgage” ceremony.