Updated: Jan 31, 2020
Buying and selling a home is an exciting time. But it can also be a bit confusing. A lot can happen in a matter of a few weeks and oftentimes some important things can go unexplained – which is why we create these blog posts!
Here is some basic information we collected from one of our title partners to share with you. Please, reach out if you have any questions or concerns about the title aspect of your home purchase/sale.
What is title?
Simply stated, the title to a piece of property is the evidence that the owner is in lawful possession of that property. Sometimes, people confuse the deed as the title. A deed is the form used to transfer ownership- the title is the legal document stating ownership that is recorded. The State of Michigan has a law in place that states the seller must convey marketable title to a purchaser in order to sell their property. Their title must be free of liens and discrepancies.
What is title insurance?
Title insurance protects real estate owners and lenders against any property loss or damage they might experience because of liens, encumbrances or the defects in the title to the property. Each title insurance policy is subject to specific terms, conditions and exclusions. Most every title search clears the title of the previous mentioned defects, but if there is an historical discrepancy that goes undetected, title insurance protects your interests.
How does title insurance differ from other types of insurance?
Insurance such as car, life, health, etc., protects against potential future events and is paid for with monthly or annual premiums. A title policy insures against events that occurred in the past of the real property and the people who owned it, for a one-time premium paid at the time of closing.
What does it cover?
Title insurance protects against claims from defects. Defects are things such as another person claiming an ownership interest, improperly recorded documents, fraud, forgery, liens, encroachments, easements and other items that are specified in the actual policy.
Who needs it?
Purchasers and lenders need title insurance in order to be insured against various possible title defects. The buyer, seller and lender all benefit from the issuance of title insurance. In Michigan, the owner’s title insurance premium is customarily paid for by the seller as part of their closing costs. However, the mortgage lender requires a separate policy for the mortgage. That policy is paid for by the buyer and is part of their closing costs.
How is a title policy created?
After the customer opens the title order, we begin a title search. A preliminary report or commitment to insure is issued to all parties of the purchase agreement for review and approval. At the closing, the title policy is created and given to the customer.
What is a closing?
Once the contingencies of the purchase contract have been satisfied, the closing documents are prepared for the closing. The parties then agree on a time and date to finish the transaction. Once at the appointment the documents are signed, monies collected and all items are disbursed. The seller gets any proceeds and the buyer gets title to the property (and usually the keys!).
What are the policy types?
A standard owner’s policy insures the new owner/home buyer, and if the buyer/owner is getting a mortgage to finance the cost of purchasing the property; a lender’s policy insures the priority of the lender’s security interest.
What is escrow?
Escrow refers to the process in which the funds of a transaction (Earnest Money Deposit or Water Escrow) are held by a third party, usually the title company in the case of real estate, pending the fulfillment or closing of the transaction.
Do I have a choice?
YES! Buyers and sellers have the right to choose which title company they want to have insure their interest and provide the settlement services. Consult with your agent for guidance on which title companies they recommend and have experience with.
For a list of preferred title companies, please click here: www.webbrealtypros.com/title