After a buyer and seller sign a sales contract, the most important step to consummating the sale is "settlement". The title company facilitates this process. By working closely with the real estate professional, the title company can insure that the settlement process is efficient, expedient and painless.

The title company gets involved after the sales contract is signed and stays involved well beyond the actual "closing". The title company orders a title search for the property, obtains a location drawing, coordinates with the lender, prepares documents, conducts settlement,disburses funds, and issues title insurance.

The title company's abstractor conducts a 60-year search of the county's land, judgment and governmental records and writes a report of what was found. The report indicates who owns the property, who has liens on it, and whether there are limits on how the owner can use the property. The title company's attorney examines the report to determine what needs to be done to clear the title so that the buyer obtains "good and marketable title" to the property.

Most lenders require a location drawing of the property, and traditionally the title company hires a surveyor to complete this task. When the drawing arrives, the title company attorney reviews it to make sure buildings, improvements and fences are within the property lines and do not violate any set-back lines or other restrictions. If there are problems, the title company works with the parties to find an acceptable solution that allows the closing to proceed.

After reviewing the abstract and location drawing, the title company's pre-closing processor calls the lender to determine the status of borrower's loan application and (if the lender allows) to schedule a settlement date. The pre-closing processor will also obtain loan information from the lender. The information is placed in a title insurance binder which (a) outlines the status of the title, lists exceptions to the title insurance to be issued (for example, right-of way agreements, utility agreements, restrictive covenants, and maintenance agreements which affect the property), and (b) indicates the actions which must be taken before an actual title insurance policy is issued (including the recordation of the deed and mortgage, and release of liens and judgments, and satisfaction of open mortgages or taxes). The lender must review and approve the binder before closing.

The title company also prepares documents, such as deeds and releases, which are necessary for the buyer to get "good and marketable" title to the property. Occasionally, the lender may request the title company to prepare the loan documents, such as the promissory note, mortgage, and federal disclosures. The title company then works with the lender to have the lender's documents delivered to settlement for execution.

At the settlement, the title company's settlement officer "closes the deal". The settlement officer explains the closing documents and has the buyer and seller sign where required. The settlement officer also prepares and reviews a settlement statement, which shows how all of the settlement funds are to be handled. When the parties approve the figures on the settlement statement, the settlement officer collects the buyer's and seller's shares of the settlement costs, which include property taxes, state and local taxes on land sales (recordation taxes and transfer taxes), lender's fees, real estate commissions, municipal charges, bills for pest inspections and surveys, the buyer's homeowner insurance premium, title insurance premiums, title company charges, and any other invoices to be paid at closing.

After the closing, the title company pays all items shown on the settlement statement from the funds collected at closing; records the deed, mortgage, and other related documents; and sends the lender the executed documents.

Title insurance is purchased at settlement, and the title insurance policies are issued shortly thereafter. Title insurance policies indemnify against losses for mistakes made in abstracting the title and against losses caused by items that cannot be discovered by examination of the public records, such as forgery of documents and missing heirs claiming an interest in the property.

There are two types of title insurance policies - lender's and owner's. Lender's title insurance is required by most lenders to protect their interest in the property from possible title defects. At settlement, the buyer has the option of purchasing owner's title insurance to protect the buyer's investment. While the lender's policy expires when the loan is paid off, the owner's policy continues as long as the owner has a vested interest in the property.

The settlement process contains many steps and the coordination of many details. To avoid delays and mistakes, it is important that all parties understand this process and cooperate with each other. The title company can facilitate cooperation and communication needed to ensure that the settlement process proceeds smoothly to its conclusion.

Abstract/Title Exam | Location Drawing | Title Insurance Binder
Document Preparation And Settlement