Something that is done in the home sales process is the ordering of a title insurance policy for the buyer and the buyer’s lender. In WA State typically the seller will buy a policy for the buyer at the full sale value of the property and the buyer buys a policy for the loan amount for the lender, if there is one being used in the transaction. All sellers must provide what is called “marketable title” to the buyer at the time of closing – meaning there are no “clouds” on the title which could include liens, claims to ownership, etc. If a seller cannot provide a clear title either the deal can be delayed, if all parties agree, until the problem is handled or it might squash the deal depending on the issue.
What happens during the actual process is this:
1. A listing agent might order a “preliminary title policy” which allows the listing agent and the seller to review what items are noted that affect the property from a title aspect. Hopefully these people will actually review the document and make sure there are no outstanding items or at the very least begin to work on clearing any issues.
2. When an offer is secured on the property then either one of the agents (listing or buying) will update the title to show the buyer’s info and the sale amount. Title policy prices are based on the value of the property and not just on the type of coverage supplied. By updating the title, this will trigger the title company to send out a copy of the title report, and hopefully any underlying documents that may be part of the title report, to the buyer’s agent and their buyer client.
I’ve noticed that a lot of people, including some agents, don’t know how to read these documents when they arrive. In fact, I’ve had the odd experience in my broker’s office once of saying to the staff, “oh, good, the title report’s here” only to be told that this was a shocking statement. I asked what people normally did with these reports and was told that most agents just throw them away. YIPES! Over time I’ve also found that some title companies are better about sending copies of the reports directly to the buyer client than others. We always ask for a report to be sent to me and one to my clients but this is often missed. Regardless of a title contingency element being in a contract you still want to review the report to make sure no items may come up that will affect “marketable title” since it is still a contractual element for closing.
3. If items are noted that are of concern then, if a title contingency is in place, the buyer may make a formal request to have certain items removed or cleared from title. Even if there isn’t a contingency any items impacting the title need to be cleared by closing (as noted above).
What are some typical items you might see?
mechanic’s liens (workman or construction place a lien for payment of a bill)
utility or tax liens (could be from non-payment or deferred payments if a senior discount was given)
if it’s an estate, perhaps payment of medical care that was provided by the state or there may be other claims on the home from other family members.
easements (be careful with some of these – I had one bite me in the butt with a neighbor who tore up my yard during his house sale) – it’s always best to read what the easement is for and who is responsible for paying the costs of upkeep, replacement, etc.
Covenants, conditions & restrictions (aka CC&Rs) – usually when the property is part of homeowner association and can affect single family homes, townhomes, and condos.
This list isn’t exhaustive but can begin to help you understand that you need to be aware of the issues involved. When you have questions always feel free to call your agent or the title company for help in understanding what you’re reading and how it affects you, if at all.
