Although the buyer’s and seller’s agents get most of the credit for a successful real estate sale, the title company is often the unsung hero. The company’s closing, or escrow, agent works behind the scenes to prepare all parties to close the deal. The title company has a number of responsibilities that relate to closing: Its job begins shortly after the buyer and seller sign their sales contract and doesn’t end until after the sale closes.
The title company’s first task is to investigate the property’s history of ownership, or chain of title, and identify encumbrances on the title. An encumbrance is any claim on a property that affects the owner’s right to possess, occupy or enjoy the property, such as a mortgage, a tax lien or an easement. If the title search finds liens or other encumbrances, the title company works to clear them. The title company summarizes its findings in a report called an abstract of title.
The title company issues title insurance, which guarantees that the title is free of encumbrances. The buyer must purchase enough title insurance to protect the lender against any loss due to an encumbrance on the title. Although the buyer may also purchase title insurance for herself, most buyers provide only the required insurance for their lenders.
Often, closing day finalizes two separate transactions: the home purchase and the buyer’s mortgage loan. Each transaction has many documents associated with it, such as the deed, the mortgage and promissory note, insurance policies and disclosures. It’s the title company’s responsibility to prepare each document and obtain the required signatures.
Property tax and homeowner’s and title insurance are among the fees buyers prepay at closing. The title company collects these fees and deposits them in a special escrow account for disbursement to the proper companies and taxing authorities.
A lot of money changes hands during a real estate closing. The buyer pays a down payment, insurance premiums and property tax in addition to loan-related fees. The buyer’s lender pays the seller the amount due after the buyer’s down payment. The seller repays the balance on his own mortgage in addition to any property tax he owes and his broker’s commission. His broker typically pays part of that commission to the buyer’s broker. The title company and any attorneys who worked on the sale must be paid, too. The title company figures out who gets what from whom, records it on a HUD-1 statement, prepares the checks and disburses the funds.
Deed and Mortgage Recording
After the closing ends, the title company records the deed and mortgage in the county where the property is located. Recording makes the deed and mortgage part of the public record that serves as evidence of the property’s ownership.
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