Informational Guide on Real Estate Title Insurance and Closing Process

The Title Search / Insurance Process

Researching the title of property protects the seller, prospective buyer and lending institution.  Title to the property demonstrates that the seller owns the property and has the authority to offer the property for sale. 

The title search also shows what other mortgages or liens may be recorded against the property and whether the property taxes are paid.

• A title search is an examination of the public records to determine the ownership and encumbrances affecting the property.
• A title report indicates the current state of the title, such as easements, covenants, liens and any defects. A title report does not describe who owned the property over a period of time.
• A title insurance policy protects the holder from any losses sustained due to problems with the title itself. Title policies insure both the new owner and the lending institution against most claims to the title of the property.

The Closing Process

The closing date is set when a mortgage is approved and the borrower signs a commitment letter with a lender. The closing date must occur prior to the expiration of the lock-in rate.  

If the closing documents are available before the actual closing, the parties should read over them carefully.  The parties need to understand what they are being asked to sign.  

Closing costs can include many different things and can add up to a sizeable amount of money. The home purchaser should know exactly what’s included in the closing costs.  Parties with amounts due will be expected to make payment at the closing table by either certified check or cashier’s check.      

Closings are standard in the home buying process.  Buyers will sign documents like the HUD-1 closing statement, mortgage note, and truth-in-lending statement.

If all parties agree that the papers are in order, the buyer and the seller will each submit a certified check or cashier's check to cover the closing costs and the balance of funds due. The check from the lender covering the mortgage amount will then be submitted to the closing agent. If the lender will be paying the property taxes and homeowner's insurance for the buyer, a new escrow account will be established at this point. 

Proof of insurance and inspections as well any monies due are required before the keys to the new home are offered. The settlement agent should obtain this documentation on behalf of the lender.

 Payments in Connection with a Closing

  Items Payable in Connection with the Loan.

Points and other fees payable to the lender.

The appraisal and credit report fees are typically labeled POC — "paid outside closing" — because borrowers typically pay these at the time of application.

Flood insurance that provides protection for the lender if the property is in a flood-hazard area. Or a nominal fee to cover the cost of certifying that the property is not in a flood zone.

  Items Required by Lender to Be Paid in Advance (Prepaids)

May include a mortgage insurance premium, homeowner's insurance, and mortgage interest from the date of closing to the beginning of the period covered by the first monthly mortgage payment.

                                                    Reserves Deposited with Lender

These are items (such as homeowner's insurance, mortgage insurance, property taxes, and annual assessments) that will be held in an escrow account by the lender for payment as they come due.

                                                           Title Charges

This category includes the cost of the lender's title insurance, which is regulated, varies from state to state, and is based on the value of your home and the amount of your mortgage. Other charges, such as the settlement fee, closing agent or attorney fees, notary's fees, and title search fees, may also be itemized here.

                                      Government Recording and Transfer Charges.

This category includes (if applicable) recording fees, city/county stamps, and state tax/stamps payable for both deed and mortgage, and transfer taxes.

                                                   Additional Settlement Charges

These may include pest inspection, house location survey, and messenger fees for delivering documents to be recorded in the land records at the courthouse.

                                                                  Property Taxes

Typically prorated between the buyer and seller. For example, if the seller has paid taxes for a period of time beyond the closing date, you would reimburse the seller. But if the seller has not yet paid taxes for the current period, the amount owed is deducted from your settlement payment. When this occurs, it is called an "adjustment."

Closing Documents

Among all the documents the buyer will sign at closing, three are critical:

                                                           Promissory Note

This specifies the terms of your agreement with the lender and the terms for repayment, including a late charge if you do not pay in a timely fashion.

                                                            Mortgage, or Deed of Trust

 A document in which a borrower pledges his or her property to the lender as security, or collateral, for the repayment of the amount borrowed to purchase the home.

                                                                      Deed

The document by which title to (meaning, ownership of) real property is transferred or conveyed from one party to another, such as from a home seller to a home buyer.

If buying newly constructed property, the owner will need a land survey, all receipts for tax payments during construction, a Certificate of Occupancy (required by building code in many areas), and certificates from the local health department for plumbing and sewer installations, required in most areas.