Title companies are insurance agencies that provide professional real estate services to all parties in a real estate transaction, including the buyers, sellers, mortgage lender and real estate agents. Title companies make sure that all requirements for settlement are fully satisfied. After the sales contract is ratified, it is sent to a title company to review for accuracy and completeness and to begin the title process, which involves the following steps:
Title Abstract — 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 and providing a history of the property and its ownership. An abstract will determine the legal owner of the property, reveal any mortgages, liens, judgments, or unpaid taxes that will have to be satisfied before the property is conveyed, and 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.
Loan Documents for Closing — Title companies also coordinate with the mortgage lender to receive the loans documents for closing. 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 and to explain in an orderly manner the costs to each party. The title company prepares a closing statement or what is referred to in the industry as a “HUD-1 Settlement Statement.” 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.
Closing — 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.
Documents Recorded in Court — After the closing, the title company will record the legal documents (deed, mortgage and assignments) 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.
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