By Diane Saatchi
When you’re ready to buy a house, you need a team.
Your real estate broker helps you find just the right place. Your attorney keeps an eye out for your interests. Your mortgage broker helps you get the money you need to buy.
But there’s someone you probably don’t know you need: the title company agent. And then, with any luck you will never hear from or see that person again --- that is until your next real estate purchase.
The title company does two things:
- It researches the chain of ownership, liens and judgments and recorded documents
- It provides title insurance.
Let me explain why those are such important functions.
When you’re buying a house, one of the first things your attorney will do is order a title report to find out who has owned the property in the past and who owns it now, to make sure you’re paying the actual owner of the property, and not the wrong person … which is something that really does happen. Your attorney will also look at the title report for documentation of any wills, liens, or divorce settlements, judgments, mortgages, or other liens that might involve the property. The report may also include open building permits and any past zoning or building violations.
Once your attorney ensures so-called “clean title,” he or she will review any limitations placed upon the property — those are called covenants and restrictions, or C&Rs. The C&Rs can affect everything from whether you’re allowed to add a second story to the house, to whether you’re guaranteed beach access, to whether you can build a house with a flat roof. While every individual town and municipality has its own set of rules and restrictions, these government regulations are the beginning of the analysis, and then the private C&Rs must also be followed. Your title report might reveal that you’re able to make even fewer changes than you thought. If there is a homeowners association (HOA) the title will identify it along with any related restrictions, rights (for access to a beach, or parking or something else) fees and amenities.
At the closing, you will be asked to pay for “title insurance.” In essence, it is insuring to you that the searches the title company provided in the title report is valid. If they are not, it is not you, but the title company on the line for both legal representation and payment of any loss up to the amount of the insurance you purchase at closing. Title insurance is not cheap, but it’s a one-time payment for coverage that lasts the entire time of your ownership, that’s more than worth it should a title claim ever arise. Very rarely are there title claims, but when they happen, they’re massive.
If, say five years from now, somebody claims they own your property and expect you to give it back, your title company will fight their title company over the property’s true ownership. If, in fact, the other person can prove they own it, and your title company was wrong, it will cover your attorney fees and the amount of your loss up to the amount of the insurance you purchased. Keep in mind that if the value of the property has increased, you can also be insured up to the value of the property at the time of the loss if you purchase a “market value rider”.
Title insurance isn’t only about something so dramatic as a stranger claiming ownership of your brand-new house. Imagine if you will, that you bought a property one house removed from the water. In your title is guaranteed access to the water, so you can walk to the beach whenever you want. However, one summer, the house separating you from the water is sold, and the new owner says you can’t cross his property to access the beach. In fact, he says, if he had known you would be doing that, he wouldn’t have even bought the house.
Because your team advised you to purchase title insurance before you bought your house, the title company has guaranteed that access to the water no matter what your neighbor says. While you and he may butt heads, it’s the title companies who will fight it out. One company will sue the other, the other will counter-sue, and they’ll sort out exactly who gets what, without you having to pay for it.
Title reports are so important that your Saunders real estate agent may order title when he or she takes on a new listing. Surprises may be wonderful on birthdays, but when selling a house, it is best to avoid especially last minute surprises. You’d be amazed by how many home owners do not know important things about their property. It is never good news, for example, to discover a long ago permitted building addition was never closed out, but its way better to know it when there is ample time to remedy. The title report does not cover everything, such as, if you did work without a permit, it won’t be noted in the title but it will be obvious from its absence in the last Certificate of Occupancy. For more about avoiding last minute surprises link to [Spring Cleaning].
© 2017 Diane Saatchi