For the buyer, loan rate-locks may expire during a delay with the title curative process, requiring the buyer to re-apply, which may result in a less than favorable interest rate when compared to the initial loan commitment. For the seller, who is responsible for providing the legal title information, a delay in the title curative process may cause the seller to lose a buyer as a result of the contract expiring.
I've seen the full spectrum of title issues that can potentially delay a closing, potentially because it's our job as closing attorneys to resolve these issues in a timely fashion. Our main goal is to assure that closings happen on time with no problems, and we pledge to our clients to do everything legally and ethically possible to make this happen. Some buyers and sellers of real estate think a closing attorney is there as a formality, to simply push papers, but thats anything but the case. A pro-active closing attorney can be the difference between a real estate closing that happens on time and one that doesnt. Title problems can include:
• Prior owners' unresolved financial issues, such as unreleased security deeds or materialmens liens in the chain of title.
• Problems in the title history, such as a break in the chain, an improper execution or an inadequate legal description.
• Probate issues.
• Judgments, Department of Justice liens, or state or federal tax liens.
• Foreclosure on title.
And there are many, many others. The most important tool to avoid a delay in closing caused by a title issue is good communication up front among all partieslenders, agents, sellers, buyers and attorneys. Buyers and sellers should talk to their real estate agents or closing attorneys and apprise all parties of anything that could possibly be a problem. For example, if the seller has experienced bankruptcy, divorce, or probate, there may be additional documentation or title work necessary before closing.
Most issues that arise from one of these situations can be resolved, but the curative process takes time. The earlier everyone communicates all the facts, the more likely it is that the closing will happen on schedule.
Having proper documentation on hand is also important for a smooth closing. Sellers should have a copy of the HUD-1 settlement statement from their previous closing, as well as a copy of their owner's title insurance policy. If these items have been misplaced, copies are available from the previous title company. Other important documents to have at closing are copies of releases of any prior liens, bankruptcy or divorce documents and marriage certificates, all showing the proper name and Social Security number of the seller. Sellers should also provide the closing attorney with names of current mortgage companies and account numbers.
Agents may expedite this process by facilitating the flow of information among all parties and working as liaisons between their clients and the closing attorney. Good communication in advance of closing will ensure that the title curative process is smooth and efficient. While sellers must address and deal with title issues prior to closing and selling their property, buyers must address any lingering title defects that arise after closing. When the title transfers to a buyer, that buyer inherits any unresolved issues. A conscientious buyer should always obtain an owner's policy of title insurance at closing for protection going forward. It is very important that buyers understand that the title insurance required by the lender protects only the lenders interests, not the buyer's. The policy for the lender covers the loan and assures the lenders lien position, subject only to stated exceptions. Buyers should obtain their own policy in order to protect their equity investment. Title insurance is valuable peace-of-mind for the most important purchase most of us ever makeour home.
Both policieslender's and buyer'sare traditionally issued simultaneously based on rates that account for both the lender's risk in making the loan and the homeowner's equity in the property. The policy premium is a one-time fee, generally paid at the closing, and the protection it affords for the duration of property ownership could prove invaluable. How real are the threats against which title insurance protects you? For some "real life" examples, I turned to Chicago Title Insurance Company. According to David Baum, Chicago Titles regional manager for most of the southeast, the two most common title insurance claims involve mechanic's liens and boundary disputes.
"Here's a typical scenario we see," Baum said. "Someone purchases a new house on which the builder has signed an affidavit affirming that all sub-contractors have been paid. A month after closing, an unpaid roofing contractor files a mechanics lien on the house. However, if the homeowner has title insurance, he has nothing to worry about. It's our job to investigate the claim, pay it if it is legitimate or prove that it is groundless. The homeowner is protected. Boundary disputes affect homeowners, as well. For instance, many residential developments have set-back regulations that require the home to be so many feet from property lines. No one knows there is a problem until a house is built on the adjoining lot, a new survey is done and the problem is discovered. If the owner of the improperly sited house did not purchase title insurance, she has a real problem. To solve the problem, the title insurance company purchased a two-ft. strip of the neighboring lotand it wasn't inexpensive. Imagine if the homeowner had to deal with all of that!"
"In addition, title insurance is particularly important in today's real estate market, where there are a lot of foreclosed properties for sale. If someone is unable to keep up with mortgage payments, chances are that a lot of other bills went unpaid, tooso there could be numerous liens on the house by unpaid creditors. For these kinds of reasons, anyone buying a foreclosed property is well advised to by title insurance," Baum concluded.
The bottom line: Whenever you purchase or sell real estate, keep two things in mind: communication up-front and protection after closing. The first is free, and the second, in the form of title insurance, is well worth the investment. Following these two recommendations is particularly important when market forces make real estate transactions more challenging than usual, as is currently the case.
Nat Hardwick is a managing partner of the Atlanta-based law firm of Morris|Hardwick|Schneider and is a member of the firm's management committee, along with Art Morris and Randy Schneider. He can be reached at (678) 298-2100.
Interesting Trivia: Abraham Lincoln and the birth of title insurance
The value of title insurance is illustrated in the painful real estate ownership history of Abraham Lincoln's family. Lincoln was born on the South Fork Farm near Hodgenville, Ky., which his father, Thomas Lincoln, bought for $200 in 1808. But there was a defect in the title. In 1811, just three years after purchasing South Fork, the family had to move to nearby Knob Creek, Ky., where they leased land, because someone else had a better claim to South Fork. There is no indication that Lincolns father recovered the $200 he paid for the farm.
Four years later, in 1815, the Lincolns were ejected from Knob Creek. Heirs to the former landowner successfully claimed in court that the Lincolns were trespasserseven though Thomas Lincoln had a signed lease. Shortly thereafter, the family moved to Indiana, "chiefly on account of the difficulty of land titles in Kentucky," Lincoln wrote in his 1860 presidential campaign biography.
It was the anxiety and outright losses of the Lincolns and other hard-working Americans that gave rise to today's title insurance industry. Some scholars believe that it was his father's repeated land-title difficulties that led young Lincoln to study law.
• Scripps, John Locke. Life of Abraham Lincoln. Bloomington, Ind. Indiana University Press, 1961.
• Warren, Louis A. Lincoln's Parentage and Childhood: A History of the Kentucky Lincolns Supported by Documentary Evidence. New York. The Century Company, 1926.