The Title Review Process
Prior to closing, your home will also go through a title review process (see the explanation of title insurance in Step 17). Title insurance is mandatory in most states and is almost always required by a mortgage lender. The title process is typically fairly straightforward, but could cause some issues for a home seller. Review this section and familiarize yourself with the issues and terms with which you are not familiar.Click here for your free guide!
"Opening title"
Upon receipt of all signed contract documents and the buyer's earnest money deposit (if applicable), the title company will start a new file for the property and begin a title search. The title search will review the ownership and title history of your property. Every recorded document (recorded with the state, county, parish or local government jurisdiction) is reviewed by the title company and noted in the title commitment.
Title search
Title companies provide insurance guaranteeing the ‘insured' (the buyer) clear and marketable title to the property which they are purchasing. In conducting a title search, the title company is looking for items that could prevent that clear and marketable title chain to the home buyer. Documents affecting the chain of title (deeds, liens, right-of-ways and other items) are recorded in governmental records and are usually available to the public. Title companies typically have databases of these documents (sometimes called "prior files"), which they use when conducting a title search. Every document affecting the "chain of title" is found in the title search, noted in the title commitment, and is either OK (covered by the insurance), or is a "title exception."
Liens, encumbrances, right-of-ways, easements – What does it all mean?
You (and the buyer) should understand what liens, encumbrances, rights-of-way and easements affect your property. You may not be aware of items which could delay or terminate the sale of your home. To begin this section, here are some definitions from Wikipedia:
Lien: In law, a lien is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation. The owner of the property, who grants the lien, is referred to as the lienor and the person who has the benefit of the lien is referred to as the lienee.
Easement: An easement is the right to do something or the right to prevent something over the real property of another. At common law, an easement came to be treated as a property right in itself and is still treated as a kind of property by most jurisdictions. In some jurisdictions, another term for easement is equitable servitude, although easements do not have their origin in equity.
The right is often described as the right to use the land of another for a special purpose. Unlike a lease, an easement does not give the holder a right of "possession" of the property, only a right of use. It is distinguished from a license that only gives one a personal privilege to do something on the land of another. An example of a license is the right to park a car in a parking lot with the consent of the parking lot owner. Licenses in general can be terminated by the property owner much more easily than easements. This is different, although similar, to a wayleave. Easements also differ from licenses in that they are attached to the land, not to a person. This means that a property that enjoys an easement over another will continue to enjoy the easement even if the property gets transferred to a different owner.
Right-of-way: An easement that permits one to travel across the real property of another, or the strip of land subject to such an easement. A right-of-way may confer rights to an individual (such as a neighbor), entity (such as a railroad) or the public as a whole.
Encumbrance: An encumbrance (sometimes referred to, particularly in the United States as an incumbrance) is a legal term of art for anything that affects or limits the title of a property, such as mortgages, leases, easements, liens, or restrictions. Also, those considered as potentially making the title defeasible are also encumbrances.
Easement: An easement is the right to do something or the right to prevent something over the real property of another. At common law, an easement came to be treated as a property right in itself and is still treated as a kind of property by most jurisdictions. In some jurisdictions, another term for easement is equitable servitude, although easements do not have their origin in equity.
The right is often described as the right to use the land of another for a special purpose. Unlike a lease, an easement does not give the holder a right of "possession" of the property, only a right of use. It is distinguished from a license that only gives one a personal privilege to do something on the land of another. An example of a license is the right to park a car in a parking lot with the consent of the parking lot owner. Licenses in general can be terminated by the property owner much more easily than easements. This is different, although similar, to a wayleave. Easements also differ from licenses in that they are attached to the land, not to a person. This means that a property that enjoys an easement over another will continue to enjoy the easement even if the property gets transferred to a different owner.
Right-of-way: An easement that permits one to travel across the real property of another, or the strip of land subject to such an easement. A right-of-way may confer rights to an individual (such as a neighbor), entity (such as a railroad) or the public as a whole.
Basically, these are all terms that describe some right to a property provided to someone else (typically someone other than the owner). Easements and rights-of-way are typically provided to utility companies having overhead or underground services on or near the property. Mineral rights for sub-surface minerals can be sold to others, with easements for access granted to the rights purchaser. Here is a hypothetical example that shows how title exceptions could affect a home buyer (or the current owner):
Hypothetical example: In 1947, the mineral rights to the land on which your home is now located were sold to XYZ Mining Company. XYZ mines coal. The land is ultimately sold to a housing developer, because the coal under the land is located very deep and would be expensive to extract. The developer builds houses on the land, one of which you now own.
The title policy you received when you purchased the home notes an easement to XYZ Mining Company from back in 1947. The title policy categorizes XYZ's easement as an exception, meaning that XYZ's easement precludes your claim to title of the property.
It's now present day, and the price of coal has risen dramatically from 1947 values. In addition, coal extraction technology has lowered the price of extraction and made it easier to get to coal that is located deep in the Earth's crust. Remember, XYZ Mining Company stills owns the mineral rights on this land and has an easement across most of the area, including the area on which your house is located.
XYZ is under great pressure from Wall Street (it's a publicly traded company) to increase their stock price. XYZ decides that, despite the potential negative publicity and ramifications involved, they will utilize their mineral rights and start mining coal from your neighborhood. They will have to remove half of your garage to create an access road for some of their heavy mining machinery. Unfortunately for you, the easement that was provided to XYZ back in 1947 allows for this and half of your garage is torn down.
This example, although hypothetical, illustrates the importance of the title review and the careful examination of the title documents.
Title commitment
The title commitment is the document that outlines what the title insurance provider is insuring, what's required to allow a title insurance policy to be issued, and what exceptions to clear title exist historically.The above example illustrates just how important it is to review and understand all of the title exceptions in a title commitment. This review is more important for the buyer than the seller, but you should review these to ensure that no "surprises" crop up prior to closing.
The title commitment will generally list the amount of insurance being provided (usually the purchase price of the property), the legal description of the property, what requirements remain to be met before the insurance company can issue a title policy, and what exceptions exist that prevent the buyer from having a perfectly clear title to the property.
Title Requirements
The requirements section includes items such as payoff of current liens (such as your current mortgage), creation of and recording of a new deed vesting the property to the new owner, payment of any outstanding homeowners' association fees (if applicable) and payment of any other outstanding judgments or liens against the property.
Title Exceptions
The exceptions section details all of the historical exceptions to title, going back to the first recorded history of the property.
Closing on the sale of your house
Once the title review is complete, title requirements are met and the buyer's lender has forwarded the new loan documents and loan proceeds to the closing agent, the home closing (sale) can occur. At the closing, you (the seller) will need to sign a number of documents that transfer ownership of the property from you to the buyer. Closings typically take only about an hour, but could take longer depending on the complexity of documents requiring review and signature. Your real estate agent (if you are using one), the buyer and the buyer's real estate agent are typically all present at closing.The closing agent will manage the payoff of any loans, judgments or other liens against your home, and provide you with a check for any remaining proceeds at the end of the closing. Depending on the particular policies in your state or city, the closing agent may also manage the transfer of water and sewer services into the buyer's name. You may be charged a number of fees at closing in regard to final payment of items such as final water and sewer bills or mortgage loan payoff. Those payees typically collect a little extra to ensure enough funds are available to pay off all debts owed relating to your property. Any overpayment of those fees should be refunded to you after closing.
Post-closing requirements
After closing, remember to provide door keys, garage door remote openers, and any other items the new owner will need to gain access to your home or otherwise enjoy their new house. Be sure that either you or the buyer changes services such as electricity, phone, cable, water, sewer and garbage services into the new owner's name within 10 days of closing (or whenever the buyer takes possession of the property).That's it – 20 sections and about 40 pages to explain the *simple*(!) process of selling your home. Certainly, there are tasks in this process that can be successfully completed by almost anyone, while others require direct market or industry skill and knowledge. Your job is to determine which tasks you feel equipped to accomplish on your own and what tasks you would prefer to turn over to a real estate professional.
For questions, help or further clarification, call HomePoint.com at 1-800-416-7949 Monday-Friday between 9 am and 9 pm Eastern Time, or Saturday from Noon - 4 pm Eastern Time.
About the authors of this report:
Chad Pinson is the managing director of HomePoint.com. Pinson joined HomePoint.com after 10 years in the real estate industry as a property investor and development manager. He bought and sold individual homes as well as turnaround and renovation properties ranging in size from $1 million to over $10 million. Prior to that, Pinson was a commercial banker specializing in real estate finance.
Chad Pinson is the managing director of HomePoint.com. Pinson joined HomePoint.com after 10 years in the real estate industry as a property investor and development manager. He bought and sold individual homes as well as turnaround and renovation properties ranging in size from $1 million to over $10 million. Prior to that, Pinson was a commercial banker specializing in real estate finance.