How to Work with a Title Company:
10 Tips When Buying or Selling Real Estate
Although you have probably heard of title companies and title insurance, you may not fully understand the role of the title company or how best to work with the title company in a real estate purchase or sale.
You can always contact a Houston real estate attorney.
What should you expect when working with a title company?
Here are a few suggestions:
1. Contract Signed by Buyer and Seller
When the contract for purchase and sale has been signed by both buyer and seller, the real estate agent, or one of the parties if no agent is involved, submits the contract and earnest money check to a title company.
2. Title Company Reciept
The title company issues a receipt and sends a copy of the contract and the check to each party. The company will typically include a cover letter showing the name of the closing agent, his contact information and GF number. The GF number (for guaranty file) is used to identify the file and should be used whenever you communicate with the closer. The process of setting up a working file for the transaction is often called “opening title” and is the first step in the title company’s work to close the sale and issue a policy.
The closer communicates with the buyer, seller and lender, requests a survey if one is required, requests tax statements, gathers the required documents, prepares a settlement statement and conducts the closing. The closing is simply the meeting where the transfer and loan documents are signed by each party.
4. Title Insurance Commitment
Soon after the title company opens title, it will conduct a title search and will issue a title insurance commitment that is sent to both buyer and seller. It is extremely important for the buyer to carefully review the title commitment because the commitment will disclose any defects in title. For instance, it will show if there are any easements, deed restrictions or liens on the property and whether there are other people who have an interest in the property. Typically, if the buyer objects to any entry on the commitment, he must state his objection within a certain period of time. If he does not timely object, the defect is waived. It is essential that the buyer act promptly to review the commitment and raise any objections he may have.
5. Closing Documents
Typically, the closing documents, which include the settlement statement, the deed and all loan documents, are not prepared until immediately before the closing. It is very important that you review all closing documents before the closing. Don’t expect to get copies of the documents a week before closing, but do ask to receive them by at least the day before closing.
6. Settlement Statement
Review the settlement statement in detail to be sure you get all the credits you are entitled to. Check the addition. Check to make sure taxes are properly allocated. If you are the buyer, review the deed to make sure your name is correct and the property description is correct. Review the loan documents and all the other closing documents in the same way you would review any contract. Pay attention to the details and be sure you understand what you will be asked to sign.
7. Take Your Time
The closing will typically take place at the title company offices. The closing agent will present one document at a time for signature. If there is anything you do not understand or if any of the documents have changed since you reviewed them, ask for clarification. Take your time. You may even want to schedule your closing for early or mid month because often the end of the month is the busiest for closers.
Remember that the title company does not represent the buyer or seller, but rather acts as an escrow agent, holding the earnest money and documents in escrow until it is required to disburse the funds according to the terms of the contract. For instance, under some sale contracts the earnest money will be disbursed to the buyer if (1) buyer terminates the contract at any time during the option period or (2) if the contract is subject to lender financing and the buyer can not get the financing described in the contract or (3) if the contract is dependent on seller making certain repairs and seller fails to do so or (4) if seller otherwise defaults on the contract. The earnest money will be disbursed to the seller if (1) buyer terminates the contract after the option period and the termination is not excused by the terms of the contract or (2) otherwise defaults on the contract. If neither buyer or seller requests disbursement of the earnest money prior to closing, it will be disbursed at closing according to the terms of the contract, usually as a credit to the buyer.
9. Earnest Money Prior to Closing
If either the buyer or seller thinks he is entitled to the earnest money prior to closing, he may send a request for release of the earnest money to the other party. If the other party signs the request, the title company will send the earnest money to the party requesting it. Some contracts, such as the Texas Real Estate Commission contract for the purchase of resale residential property, provide that if the party being asked to sign the release fails to do so, then the requesting party may make a written demand to the escrow agent for release of the earnest money. The escrow agent sends the demand to the other party and if there is no written objection within 15 days of the demand, then the escrow agent may distribute the earnest money to the party making the demand minus the cost of unpaid expenses.
10. Working Out a Compromise
If you and the other party to the contract each think you are entitled to the escrow money, consider working out a compromise. As a practical matter, the title company will not get involved with any dispute over the earnest money. As escrow agent, it is bound by the terms of the contract and will go to great lengths to avoid any potential liability for releasing the escrow money to someone who may not be entitled to it.
Thoroughly Review the Title Commitment
This article suggests only some of the issues to consider when working with a title company. Remember, the title company is a neutral party. You must look out after your own interests. Thoroughly review the title commitment and all closing documents. Get answers to any questions you may have before closing. After closing, when all documents have been signed and funds have been transferred, the deal is done.