Q: What is title and why do I need title insurance?
When you buy a piece of land, you are given “title.” Title is legal documentation that shows the right to, or ownership of, a specific real estate property. How a home is titled can vary. For example, title might be held as tenants in common, as joint tenants, right of survivorship, or there might be a life estate in the home. One of the steps in purchasing a home is to have a title search completed prior to closing. This search is performed to ensure that the title is clear,including no unexpected surprises.
In addition, there are many uses for land with which rights can be given or sold for such uses. Someone other than the owner of the property itself, may own mineral, air, or utility rights on the property. A bank with a mortgage on the property owns an interest in the property, as does someone who has done work on the house and filed a lien against it. The government may also have liens against the property for unpaid taxes or the city may have an easement, giving it the right to place utility lines across the property.
Title insurance covers events relating to the title that have already happened. It does not cover anything that happens to the title after the date of issuance. If you have liens filed against the property for taxes that you did not pay, your title insurance policy is not going to help you. On the other hand, if the lien is for taxes not paid by someone who owned the house eight years ago, then you may have coverage under your title policy.
Q: What is a Lien?
A lien is a legal claim against property that must be satisfied to have clear title to property being sold. In other words, it is a claim of money against a property when the value of the property is used as security in repayment of a debt.
The three most common types of liens are: “mechanic’s liens,” which are filed by general contractors, carpenters, plumbers, roofers, etc., to ensure payment for their work, “judgment liens,” which are filed by the winning party of a lawsuit against the home of the losing party, until payment for a judgment is collected, and “tax liens,” which are filed by federal, state, or county governments for failure to pay taxes.
Since a lien is a defect on the title, it must be settled before the transfer of ownership of a piece of property can occur. A lien release or satisfaction is a written report of the settlement of a lien, and it is recorded in the public record, as evidence of payment. A lien waiver is a document that releases a consumer (homeowner) from any further obligation for payment of a debt once it has been paid in full. These are typically used by homeowners who hire a contractor to provide work and materials to prevent any subcontractors (or suppliers of materials) from filing a lien against the homeowner for nonpayment.
Q: What are encumbrances?
Encumbrances are any claims made against a property by a party that is not the owner. These can impact the transferability of the property, and can restrict its free use until the encumbrance is lifted.
Encumbrance is a term that covers a wide range of financial and non-financial claims on property by parties other than the title-holder. Encumbrances include liens, deed restrictions, easements, encroachments and licenses, which all prevent an owner from exercising full control over his or her property. It is important, from the buyer’s perspective, to be aware of any encumbrance on a property, since these will often transfer to the buyer along with ownership of the property.
Q: What is a Quit Claim Deed and why would I need one?
A Quit Claim Deed is a type of deed that makes it possible to transfer legal ownership and interest in a property from one person (the grantor) to another (the grantee). Quit Claim deeds are typically used when transferring property between family members or those with close relationships. In other words, a Quit Claim Deed does not provide the new owner with any guarantees or warranties that the seller owns the property or even has authority to sell it. This type of deed also does not guarantee that a buyer is receiving the property free of mortgages or liens. If it turns out that the current owner does not have a clear title, the transferee cannot sue the current owner for failing to convey clear title to the real estate.
This lack of liability distinguishes a Quit Claim Deed from other types of deeds. The transferor makes no assurances, while the transferee simply takes whatever title the transferor has and the transferor is not liable if title is defective. They are commonly used when there is a preexisting relationship between the transferee and the transferor or when no money is changing hands. For example, taking someone’s name off or adding a name to a deed, transfer of their property between family members, transfer of real estate from a person to a business that is owned by an individual, or a gift of property from one person to another. This type of deed is often used after a divorce, which would ultimately eliminate one spouse’s interest in the home. Quit Claim Deeds should not be used in a commercial setting due to the lack of assurance for the transferee.
Q: What is a Warranty Deed and why do I need one?
A Warranty Deed is a document that may be used to legally transfer property. It states that the owner can legally transfer the property and that no other entity has a claim or lien on it. This type of deed is typically used for property sales and to make warranties about the property’s title. This deed will include a legal description of the property, the names of the grantor (who is transferring the property) and grantee (who is taking new ownership), and the language conveying ownership from the grantor to the grantee. Along with title insurance, it is necessary to secure the grantee’s valid ownership interest and gives the grantee legal recourse against the grantor for any claims to the property.
You must file the deed with Public Records Office to show that title has been transferred. After the Grantor signs the deed, the warranty deed has to be notarized in order to be valid.
Q: What Types of property ownership are there?
As a property owner, your deed defines the form of ownership and how the title for the property changes upon the death of an owner. The most common types of ownerships are: Sole Ownership, Joint Tenancy with Right of Survivorship, Tenancy in Common, and Tenancy by the Entirety.
Q: What can I expect at a closing?
To prepare for a closing, review drafts of your closing documents before closing. This will ensure that you completely understand the terms of your closing. It is also a good idea to do a final walk through of the home prior to closing. This will allow you to make sure the home is in the condition agreed upon in the contract.
The closing is an appointment at which the title to the property is transferred to the buyer and a mortgage (or deed of trust) is typically given by the buyer/borrower to the lender. It is important for you to bring a government issued photo ID, copy of your contract, proof of homeowner’s insurance. Prior to the closing you will be notified how much you will need to pay. You will need to wire transfer the funds prior to the closing. At the closing table, the parties will execute all closing documents, including deeds, affidavits, closing statements, disclosures, and loan documents, if applicable. You will be given copies of all documents.
Q: How does the Process work?
Once the seller accepts your sales contract, your settlement agent will handle the closing process from there. Your settlement agent will see that your deposit is promptly deposited into an escrow account where the funds are held until the time of closing.
Next, a request for preliminary title work will be ordered. A title examiner will search and examine the public records for information related to your property’s title. This will surface any warnings or title flaws that must be dealt with before the property can change hands.
Finally the settlement agent will prepare the Closing Disclosure or Settlement Statement. This will outline all of the costs for both the buyer and the seller associated with the closing. On closing day, the property will be transferred from the seller to the buyer. You will then sign a number of documents that will be explained by your settlement agent and upon completion; you will be the owner of the property.
Afterwards, the settlement agent will forward payment to any prior lender, pay all the other parties who performed services in connection with your closing, pay out any net funds to the seller, and order a final search of the title to your new home before finally recording all the documents needed legally to complete your purchase. Post-closing details will be taken care of by your settlement agent and will need no further assistance from the buyer.
Q: What is Escrow and how does it work?
Escrow is when an impartial third party holds on to something of value during a transaction. For example, when you make an offer on a home, you will write an earnest money check that will be placed in escrow. It will be held there until you and the seller negotiate a contract and close the deal. You and the seller have no way of getting ahold of those funds. Escrow is important because it protects both parties from any negotiation conflict; it ensures that everyone gets what they are due essentially at the same time.
When your purchase is completed, you will hear the term “closing of escrow”. A settlement agent will oversee the final paperwork and handle the exchange of funds and recording deeds. This individual will ensure that all the money is properly disbursed, that the documents are signed and recorded, and that all necessary conditions are met before closing the escrow.
Q: Who should I list as the Grantor and Grantee?
The Grantor is the person who bestows or gives the possession of something. In the case of a transfer of property by deed, the Grantor is the person who gives interest that he or she holds in the property to someone else. Generally, the Grantor section should include everyone whose name is currently on the title of the property that is being transferred.
The Grantee is the person who receives the grant. In the case of a transfer or property by deed, the Grantee is the person who receives interest of the property from the Grantor and should include everyone, whose name will be on the title of the property once it has been transferred. The deed will reflect the type of ownership, such as, “Joint Tenants with Right of Survivorship”, “Tenants in Common”, or as “Tenancy by the Entireties”. Be aware that a person can be both a Grantor and a Grantee on a deed. For example, if John Smith currently holds the title to a home and he wants to convey half interest of that family property to his wife, Mary Smith, John Smith would be listed as the Grantor, and John Smith and Mary Smith would be listed as the Grantee.
Q: What is a mortgage?
A mortgage is the security document for a loan that a bank or lender gives to help finance the purchase of a house. The property you buy acts as collateral in exchange for the money you are borrowing to finance the mortgage for the property. When you get a mortgage, you will sign legal documents known as a mortgage note that will state you promise to repay the balance of the promissory note, with interest and other possible costs over a set period of time. The amounts due on a typical mortgage includes: principal, interest, taxes and insurance.
-Principal is the total amount of money you borrowed to buy the home.
-Interest is the price that you pay to borrow money from your lender.
-Taxes are the property taxes you pay as a homeowner. (They are typically calculated based upon the value of your house.)
Mortgage insurance includes homeowner’s insurance and (possibly) mortgage insurance. You are required to get homeowners insurance by your lender to cover your house and possibly the property inside. Typically for conventional loans, if your down payment is less than 20%, you will have to pay mortgage insurance which protects the lender if you default on your mortgage loan.
If you default on your mortgage payments, the lender is allowed to foreclose its mortgage and the court will sell the property to pay the debt owed to the lender. This process is known as foreclosure.
Q: What costs can I expect?
Saving for a down payment and getting pre-qualified for a mortgage are major financial milestones in the home-buying process. Besides those two obligations, there are more money-related matters to be aware of during the journey to homeownership. It would be helpful to start budgeting for other charges, even if you are aware of the costs.
Good Faith deposit is a security deposit you will make to prove your intent to buy the home. This amount is held by the title company and then put towards the down payment when you purchase the home. Be aware that this check will get cashed right away!
Home inspections are important because it will help you thoroughly review the condition of the home you are about to buy. They can also help you avoid costly surprises later on. Depending on the company, home inspections will have a flat rate.
The final amount due at closing will vary depending on the size of the home, its location and the type of mortgage you seek. You can discuss your mortgage and loan options with your lender.Closing costs include certain fees involved in the home sale and mortgage transaction. The amount of the fee can vary based on location, type of property, mortgage lender and loan product. This can include any of the following, but are not limited to:
Q: Should I have a home inspection done?
A home inspection is an all-encompassing examination of the condition of a home. This will assist the buyer in understanding exactly what they are about to acquire. A home may look more ready on the surface, but an inspector will cover features of the house such as electrical wiring, plumbing, roofing, insulation, as well as structural features of the home.
It is typical for the inspection to occur right after the home goes under contract. Buyers are given a specific amount of time to have a contractor or a professional home inspector check out the home.
Home inspections are not 100% necessary, but they are highly recommended. There are very few cases when people should not have a home inspection done. A home inspection will definitely give the buyer a peace of mind and confirmation that their home is in good shape.
Q: What is a property survey and do I need one?
A survey is commonly used to locate common property issues before they become a serious problem. This will also allow certification for zoning, environmental certification or a floodplain classification.
When purchasing a new home, it is important to know the location of the boundary lines and other lines of occupancy or possession. The boundary line certification will tell you whether the legal description of your property is accurate.
A typical survey will include visible or surface waters only. Underground waters and wetlands are topics that are better covered by other professional inspections. Poles and above-ground wires are obvious, but the surveyor can report on the existence of underground cables and drains, as well, if the information is provided to him or her by your utility company and municipality. Such information is important for two reasons: (1) A utility company may have a say in how tall you let your trees grow, and (2) knowing the exact location of underground utilities is critical before any excavation or construction begins.
The surveyor will certify that the buildings and other improvements, alterations, and repairs to your property that exist at the time of the survey are not in violation of laws or other restrictions such as those regarding height, dimension, frontage, building lines, setbacks and parking.