Chapter 4 TITLE INSURANCE: Consumers & Real Estate Professionals Chapter Outline Selection of the Title Company What the Title Insurance Company Insures How the Title search is performed What a Title Company Does Payment for the insurance policy and title search Opening the Title Order Analyzing the Statement of Information The Preliminary Title Report What the title search reveals How title is held Title participation at close of escrow and beyond Chapter 4 At the conclusion of this chapter, you will be able to: 1) Explain why principals should make informed decisions in the selection of the Title Insurance Co. 2) Give a definition of title insurance 3) Differentiate between a preliminary title report and a policy of title insurance 4) Outline the steps used to obtain a preliminary title report 5) Understand how a title search is performed 6) Distinguish between property and people title issues Selection of the Title Company Buyer has the right to select the title and escrow company under Real Estate Settlement Procedure Act (RESPA) law Some financing limits the amount the borrower may pay low-income borrowers government insured or guaranteed loans special city or area programs for first time home borrowers The seller generally selects the transaction services Payment and Experience The party that pays for the service has the right to select the service provider Seller usually has prior transaction experience Original purchase Refinance Buyer usually knows only agent and lender Selection using the former title insurance company may save time, efforts and money Title Search searches the records establish the chain of property ownership for prior ownership interest current lien records search back to the last title policy computer records capability of scanning documents electronic transmission of data independent validation of the documents and records Title officer verifies the information questions past data The Title Insurance Company insures against loss a non-recurring, one-time premium expense coverage is valid for as long as the same named insured owns the property uses a set of records referred to as the title plant title policy clears all liens except those disclosed in advance of ownership change Things That Affect Title Condition: The estate or interest in property . The recorded owner of the estate or interest. The legal description of the parcel of land involved. Taxes (city and county) Bonds and special assessments, such as street lighting, sewers, sidewalk and repairs. Easements, such as public utility purposes, alleys, sewers, light and air and driveways CC&R’s (covenants, Conditions and Restrictions) Affecting use of the land: types of buildings, setbacks & fences. Existing Deeds of Trust Things Affecting the Condition of Title Judgment liens recorded against persons (sellers): Federal Income Tax liens, money judgments, etc Recorded leases: Building, ground and mineral Recorded declaration of Homestead List of printed title policy exceptions and exclusions The legal and vesting are descriptions, rather than a condition, and are the subject of the title report The licensed agents (salesperson and loan agent) should read the title report to look for discrepancies (red flags) How the Title Search Is Performed escrow gathers the initial information the title company to open a title search information about the property and the principals By reviewing paper documents by computer searches by going to the offices of the courthouse, county recorders, Internal Revenue Service records, tax assessor’s. Types of Title abstract of title A condensed version of the recorded documents affecting title The initial search, attorney opinion or certificate preliminary title report an offering that title insurance may be offered items preliminarily found affecting the property policy of title insurance Coverage for future claim be made against the property based upon past records found Gap in the Chain of Title results in a cloud on the title court action needed to establish ownership current owner does not have valid title abstractor must validate any gap in the title current owner cannot convey title cannot obtain a policy of title insurance Warranty Deed Seller warrants that the grantor can pass title to the grantee in good condition. What if a title attack fails and the property owner suffers a financial loss? Go back to the grantor from which title to the property was received Problem # 1: locating the grantor Problem # 2: grantor may be insolvent Problem # 3: time and expense to bring an action Title Companies in California Structure: corporations whose assets are reviewed by the governmental agency Business practices: Licensed by the state Insurance commissioner review of the company’s past performance, current claims and projected resources. Controlled by the integrity and financial structure of the company that issues the policy What a Title Company Does performs a thorough and diligent search of the title records and public documents insures a principal against hazards inherent to real property ownership insures the legal right for an individual entity to possess and use the property within the restrictions found on the property Difference: Deed vs Title Policy Recordation of a deed only delivers all the rights that the grantor had in the property the buyer might not have received any interest in the property Title policy legal defense will be provided if the title to the property is under attack policy is insurance up to the face amount of the policy if the title attack should fail. Payment for the Insurance Policy and Title Search The cost of title insurance is by local practices The party requesting the service is normally the one responsible for the expense Premium rates are in the same general range Difference in service A single, non-recurring premium is paid only once Opening the Title Order Performed by online, fax or telephone By real estate agent, escrow officer With title receptionist or order entry clerk The basic file information is transmitted for the property data, seller information and the name of the buyer and vesting Existing known liens and the type of financing the buyer will be obtaining Statement of Information completed by each principal information on employment, residences, social security number, and former marriages Information used to search state and IRS income tax records court index records for any judgments or suits title company searches the general index (GI) with the name of the person Title Examiner searches the general index (GI) with the name of the person uses the place of residence and employment to establish the likelihood of the record not matching the proposed insured. All clouds would have to cleared title technician and the title unit will determine if the title officer will allow the title insurance company to place the insurance policy on the transaction Preliminary Title Report (Prelim) a signed and dated report used to facilitate the issuance of a policy of title insurance. a report of the conditions found on the property upon which the title insurance company is willing to issue a policy of title insurance shows existing items that are currently recorded or are of record against the property What the Title Search Reveals Data found against the property encumbrances of record Data found against the people Voluntary and involuntary liens Title Defect Anything in the entire history of the real property ownership that may encumber all or any part of the property owner’s right to quiet enjoyment of the property. May cause the owner to lose some portion of the property. Results may be a turn down of the application if the company determines that the title cannot be cleared. The title company will not provide insurance when the title is found to be uninsurable. How Title Is Held Vesting how title is held to secure a person’s authority or right to title ownership of property Legal and Tax Consequences Title by Only One Legal Entity Corporation Limited Partnership Living Trust REIT Separate Property Joint Venture Individual Title With More Than One Individual Joint Tenancy Tenancy in Common Community Property Partnership Property Community Property with right of Survivorship Title Participation at Close of Escrow and Beyond when someone makes a challenge to the ownership of the property defend the title at the expense of the title company future claims against the title Think About It! Two real estate students, A & B, decide to buy an investment property duplex together. A has more funds available than Band puts 2/3 of the cash needed to close escrow and B pays 1/3. The Grant Deed states only their names with no other mention about vesting. A & B live in one side of the 3 bedroom duplex and they rent out the other side of the duplex for the rental income. After a while they begin to disagree on everything. A asserts the greater ownership interest and orders B to use only 1 bedroom because A will be using the other two bedrooms. How is the title to the property held? What are the rights of A & B? Answer: The interests are not equal and no vesting was stated at the time they acquired the property, so each holds title as a tenant-in-common (TIC). Each has a right to possession to the entire property with no limit on specific portions of the property. B could sue A to regain possession. B could also sue for partition. A judge would most likely have one buy out the other or order the property sold and the proceeds split with A getting 2/3 of the net proceeds and B getting 1/3. Escrow would need the signature of both A & B to transfer ownership to a third party in the event of a sale. Escrow would need the signature of B to grant all interest to A if A & B agreed that A could refinance the property and pay B his or her 1/3 net proceeds.
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