Title Companies and Title Insurance

Types of Title Insurance
What Happens If There Is a Lien on the Property

Before signing on the various dotted lines, it's important to confirm that the seller truly owns the property and isn't overlooking problems, such as outstanding mortgage payments or debts.

A buyer can find out critical information about a piece of property by getting a preliminary title report (also referred to as a title search). Title companies research these reports using public records, and guarantee the findings by selling title insurance.

The preliminary title report, which takes several days to complete, establishes who legally owns the property. The report indicates if the seller is the only person authorized to sell the property, and includes a list of previous owners as well as purchase and sale dates. It also lists any liens against the property.

Sellers usually pay for the report because they are responsible for guaranteeing a clear title. The seller's real estate agent or attorney often orders the report after opening escrow.

Types of Title Insurance
Title insurance, issued by the title company and often required by lenders, guarantees the house is free of liens. There are two types of title insurance:

  1. A lender's policy protects the lender against loss due to unknown title defects, and guarantees that the lender has a valid first lien against the property.
  2. An owner's policy protects the buyer from unpredictable factors, ranging from human error to forged documents, that might emerge after a sale is complete. This type of title insurance has no annual premiums. The buyer pays when the policy is issued. In some states a seller purchases title insurance to guarantee that the buyer is receiving a clear title. In others, the buyer pays for the policy to protect the lender. Only an owner's policy will protect the owner from personal loss, such as legal expenses for a dispute after the sale.

The cost of title insurance depends on the findings of the title report, but since costs vary from county to county, comparison shopping is a good idea.

Once buyers have reviewed the title report, the buyer should discuss the findings with the seller, real estate agent and others involved in the sale. A buyer may demand that the seller clear anything on the report that could become a liability in the future, such as an existing lien. grnarrow.gif (866 bytes)

What Happens If There Is a Lien on the Property
A title company often withholds proceeds from the sale of the house to pay the liens. The title company will refund the money to the seller if the seller clears up the issue. grnarrow.gif (866 bytes)

Types of liens include:

Once clear title has been established, the buyer will have ownership and exclusive use of the property.