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Real Answers from Matthew McDonald
Cumberland Title Services, LLC
Real Estate Attorney, Owner

Just what does your Deed say?

I have conducted thousands of closings as a real estate attorney. The purchase of a home is a very paperwork intensive process. While other industries are moving toward paperless - we attorneys are (generally speaking) dragging our feet. The purchase of your home will most likely require you to sign a stack of paperwork at least one, sometimes two and occasionally three inches thick.

One of those documents should garner some special attention and you should take a close look. It is the deed. This is the one document that it all comes down to. The deed transfers title to from the seller to the buyer. But what is of interest is with what warranties it transfers title.

A deed will often make certain promises or covenants as to the title to the property. It may contain covenants such as it being free from all liens and/or attachments or the seller promising that they are the sole owner of the property. Sometimes a deed (sometimes called a quitclaim deed) will make no covenants as to the status of title. Often buyers receive quitclaim deeds as part of foreclosure sales or sales by towns for unpaid taxes.

Real estate law is going to differ from state to state but you should ask an attorney, your real estate agent or the title company you may be using to explain the warranties you will be receiving in the deed from the seller And someday when you go to sell the property - you will have to give a buyer a deed making (or not making) certain warranties regarding the title to the property.
You should also take a close look at the Deed to make sure your name is spelled correctly and check that the property description on the deed is actually the property being conveyed. Mistakes do happen, so double check.

Regardless of the deed you receive, you should always get the Owner Policy of Title Insurance. I've mentioned in previous articles the importance of Owners Title Insurance and next month we'll go into more detail as to why every homeowner should have it.

October 2008

Save on closing costs by choosing your title company.

Your title company may seem like the last step in the purchase of a new home or refinance. In reality your title company has been working along with your realtor and/or lender to produce that magical day where you refinance or buy your home. It's called the closing, escrow or settlement depending on your state. (In my state it is called the closing).

The title company you choose performs three essential functions, the title search, issuing title insurance and the closing. The title search consists of reading the previous deeds and any other in documents recorded in your county's offices regarding the property to determine if the seller does indeed have title to the property. A title company should be searching back at least 40 years in the registry of deeds.

Your title insurance company also issues title insurance. Title insurance is an insurance policy which protects the lender and the homeowner against loss resulting from any defects in the title or claims against a property that were not uncovered (or missed!) in the title search. These claims may result from liens on the property, claimed easements, forged documents, unrecorded “wild deeds” or the lack of proper authority to sign a document.

You will be required to purchase Lender's title insurance which protects the lender. You will also have the option to purchase an owner's policy of title insurance. It is a one-time fee that protects you as long as you own the property against claims to your title. Note, that a lender policy protects the lender only, not you. The only way for you to benefit from the title search that was performed is to purchase the owner's title insurance.

The last service the title company you choose will perform is the closing. The closing is the day when you will go to the title company and sign all of the paperwork to purchase or refinance your house. The title company will coordinate the lender, the real estate brokers, the sellers, the buyers and any lawyers if they are involved. After the closing your title company will record the relevant documents and you can move into your new home.

I've used the phrase “title company you choose” a few times in this article. That's because you should choose your title company and avoid being directed to one particular title company by your lender. That's because the real estate industry has this quirky arrangement where by settlement service providers form a joint venture. What this means for you is that when your lender or realtor recommends a particular title company, he may be getting a financial benefit by doing so.

Question: Is the title company he recommends a quality operation with great service and low prices?

The Real Answer: Maybe, but maybe not. Mortgage brokers are supposed to disclose the fact that they may be receiving a financial benefit from their recommendation to borrowers but that disclosure often ends up being buried in a pile of paperwork. You may not know it when you see it. Therefore, it is up to you to ask if the title company is being recommended because it is part of a joint venture.

Question: Are joint ventures good for consumers?

The Real Answer: The jury is still out on that one. The arrangement was supposed to create a one-stop shopping experience that was more efficient and cheaper for home buyers. In reality, the joint ventured title company doesn't need to compete in the open market for business (note that it is supposed to be out there advertising and competing) because it has a steady flow of customers arriving at the front door thanks to the mortgage company. Does the title company in a joint venture need to have aggressively low prices? Does it need great service? Nope, the steady flow of customers from the mortgage company or realtor assures its business.

Question: What should you do?

The Real Answer: First thing is to shop for your title company, just as you shopped for interest rates from your lender and/or shopped for a real estate agent. Second, ask and understand whether the title company being recommended to you is “joint ventured” with the person who is recommending them. If so, ask for rate information (including charges for recording documents and overnight charges - these are frequently “up charged” to the consumer) and compare to other “non-joint ventured” title companies.

And lastly, buy the owner's title insurance. It is optional so you could save a few hundred dollars by declining it. However, your home is your largest investment and just as you would not want to be without hazard insurance, you don't want to be without title insurance. A recent survey by the by American Land Title Association found that there were title problems in one-third of all residential real estate transactions. An owner's title insurance policy is your only protection against an error that could result in the loss of your home.

September 2008

Question: What is title insurance and why do I need it when purchasing a home?

The Real Answer: Title Insurance is an insurance policy that protects you against claims to the title to your property. The title to your property is that bundle of legal rights that says YOU own the property. After purchasing the property and properly recording the deed as well as other documents - title will be vested in you. If it turns out that there is a financial loss due to title not being vested in you or perhaps a percentage of the property is vested in someone other than you; that's when title insurance kicks in to protect you.

The Owners Policy of Title Insurance protects against loss from liens, claims to the title to your property, defects in title (such as a forged deed, or lack of authority to sign a deed) and a whole host of other problems that can affect title to your property.

Question: How often do title defects happen?

The Real Answer: A recent poll of title abstractors (the professionals who search title to properties) found that there is a title defect in 1/3 of residential title searches. A quality title search from an experienced title company is important!

Question: If a title search and title insurance is so important, who picks the title insurance company?

The Real Answer: You do. Many homebuyers choose to go with their lender's recommendation for a title company. And your mortgage professional is a great source of information, but the choice is yours.

CAREFUL: Some mortgage companies actually own their own title companies. So they of course recommend their own title company 100% of the time. There is a lot of controversy in the industry over this arrangement. Is their recommendation in this situation a good one? Maybe… maybe not. Some see this is nothing but a glorified kickback scheme.

The important thing is to shop around for a title company just like you shop for mortgage rates. In my opinion, it is a better choice to go with a title company that is NOT owned by your mortgage company.

Question: What is HUD-1?

The Real Answer: The HUD-1 or Settlement Statement is the document that identifies all the costs, charges, credits and amounts involved with a closing. It can be dizzying array of numbers, so spend some time with it and ask your settlement agent at your title company to explain each and every charge. You should have a thorough understanding of this document as it is one of the most important you'll sign. You should receive the settlement statement 24 hrs ahead of your closing to give you time to review it.

DISCLAIMER: The information presented here is for informational purposes only. It is not, nor is it intended to be, legal advice, nor for the formation of a lawyer/client relationship. The transmission of a question and the receipt of an answer, does not create a lawyer/client relationship. The reader is encouraged to seek independent legal counsel before consummating any real estate transaction, legal action or relying on anything in this article and/or answers received. Laws can and do vary widely from state to state and hence the information contained herein and/or an answer to a question you may pose may not apply to your jurisdiction