Whether you are buying or selling a home your first goal is to get into an agreement to transfer ownership of real estate. Once negotiations are over and a contract is signed by all parties the transaction process has begun!
First item of business for your real estate agent or the agent’s transaction coordinator is to open escrow with a title company. The title company will be chosen by the party stated in the contract, this is more often the seller. If it is your decision to make and are unsure of the best option your real estate agent will be a great resource in this matter. They have worked with the title companies and know what to expect from each.
Once the transaction has been opened with the title company they will complete a title search, collect the earnest money deposit from the buyers and deliver the title commitment. These have due dates specified in your contract. Your agent, their transaction coordinator and title processor or escrow officer will all be ensuring these dates are met and informing you once they are, so you can rest assured.
It is important you understand what the title search includes, what to look for on the title commitment and why you need title insurance.
Let’s talk title
This is the owner’s right to possess and use the real property. As well as the right to sell the property. Like other items of value that show ownership through titles it is used to transfer ownership to the buyer.
The title will be accompanied by a deed, the legal document showing rightful ownership and signed by both parties.
Types of deeds for purchasing real property:
- General Warranty Deed – protects the buyer assuring the seller holds clear title to the property and there are no encumbrances, outstanding liens, or mortgages against it.
- Special Warranty Deed – only guarantees title defects through the time of physical ownership of the seller.
A title search will be conducted by the title company. This will find public records on the property, providing ownership information, easements, liens, etc. Items that come up in this search will show if the title is clean or any red flags that may need to be addressed before closing. If anything comes up that may be non-negotiable it gives the buyer the opportunity to terminate the original agreement and end the real estate transaction.
Your real estate agent will be able to explain if any items come up that need more attention. Consulting with an attorney is always a great option as well.
The Title Commitment
When the title search is complete a title commitment will be provided to parties involved in the real estate transaction. It will document all of the information that came up during the search. It is also the title company’s word to provide the title insurance policy after closing with the terms and conditions mentioned in the commitment.
Layout of the commitment:
- Schedule A – outlines information of the transaction. Seller name and property address, sale price, buyer and lender name.
- Schedule B – Requirement and Exceptions
- Requirements – items that need to be addressed before closing such as paying off taxes and mortgages, releasing liens, recording deeds, fixing errors on title.
- Exceptions – items that will not be covered by title insurance policy such as water rights, easements and HOA restrictions.
It will be important to review and make sure the transaction information is correct. The Exceptions section you will want to pay close attention to, this is where you will find items that may impact your ownership on the property.
Now, Title Insurance
The title company is also your title insurer. As stated above, the commitment will outline what will be included in the policy.
So what is title insurance? It is a contract to compensate for losses arising through defects in the title to real estate.
Two types of title insurance:
- Lender’s policy – required by your lending institution to protect them as long as they have interest in the property.
- Owner’s policy – protects your rights as a homeowner as long as you or your heirs have interests in the property.
Title insurance is different from other insurances that protect from what may happen in the future because it protects from what happened in the past. Real estate owners and lenders are covered for any property loss or damage they might experience because of liens, encumbrances or defects in the title to the property.
How your Real Estate Agent can help with title issues
When there are corrections that need to be made in Schedule A, like a name or sale price change, a property address adjustment, etc . an amendment to the contract can be drafted up by your agent. After it is signed by both parties the agent or their transaction coordinator will send it to the title company and they will issue a new commitment.
A satisfactory survey may be required for the Owner’s policy. If you do not already have one, your agent or their TC can help you find a surveyor and get a survey scheduled. The party responsible for ordering a new survey will be stated in the original real estate contract.
The real estate transaction process can be overwhelming at times and having the right team of people in your corner will make it run smoothly.
I always recommend you hire a real estate agent when looking to sell or buy your home. They are experts in their field, they know the area, they can recommend the right people, are a great resource of information and will always have your best interests in mind.
If looking to buy or sell in Colorado I will be happy to suggest a local agent in your area, lender or title company.