Obtain Title and Title Insurance

The ratification of a contract spurs a variety of actions, which fall into two lines of effort: title and settlement, both of which are carried out by the title company and/or its affiliates. In a sentence, title work involves ensuring the new owner will have an unencumbered title, and settlement activities include all of the coordination to get to closing.  

Title work involves:

• Conducting a title search through historical land records to see if there are any liens or other blemishes on the property

• Satisfying any liens or judgements against the property by paying entitled parties to ensure the buyer receives a clear and marketable title

• Issuing title insurance for the lender and/or owner

Settlement includes:

• Preparing paperwork for signature, including the settlement statement

• Coordinating with the lender and other vendors

• Ensuring all contingencies are satisfied

• Managing the escrow account, which is the collection and distribution of funds in a bank account held by the settlement company

• Recording the deed transfer with the local land records department after settlement

The purpose of a title search is to ensure that there is a sequential chain of title and that the current owner legally possesses the right to sell the property. However, sometimes there’s a break in the chain of title, or there are liens against the property that need to be resolved. Title issues are often called blemishes. Blemishes are claims to the title of a property and can impact a new owner’s rights, so it’s of critical importance for the title company to resolve any liens prior to the property transfer. Most lenders will only issue a mortgage on a clear and marketable title. 

Examples of Blemishes: 

• Outstanding mortgages

• Unpaid property taxes

• Mechanic’s liens

• Encroachments or boundary disputes

• Illegal deeds

• A missing heir

• Forgery

If any monetary title issues arise, the seller will have to pay the outstanding debt to remove the lien(s) before the property can be transferred. Refusal usually means the termination of the agreement. 

If having the title to a property is conceptual ownership of a property, title insurance protects against future claims of ownership that others may make on your property. Title insurance protects you and the lender from scenarios where the title could be rightfully reclaimed by another party, which would leave both you and the lender S.O.L.–you’d have no claim to the property and everything you had paid toward the mortgage and that the lender paid to the previous seller would be lost. If you select the title insurance that covers both you and your lender, you would both be reimbursed via your title insurance in the aforementioned scenario.

If you’re getting a loan, the short answer is likely “yes.” If not, “no, but recommended.”

There are three common types of title insurance: A lender policy, a standard owner policy, and an enhanced owner policy. In the tiny fine print of the verbose contract you'll be signing to obtain your loan, the lender almost always requires that you pay for title insurance, at the very least to protect the lender. Whether you opt for coverage that also protects you is entirely your choice (unsurprisingly, it doesn’t matter to the lender whether you recoup any money lost in a battle for the title). The type of title insurance you get is one of the options you'll need to select before you close.