Keys to Title #1



Title closings and title insurance are very important real estate investing topics that don’t get a lot of attention. Along with the real estate purchase contract, title is something that you will need with every transaction. Next month I will cover the contract.

The first thing you need to understand is that your title company (or attorney) is really an insurance sales company: they sell title insurance on real estate transactions. The underwriter (who you might not even know about) is the title company’s insurance company—the company that actually insures the transaction. As insurance agents, title companies are heavily regulated by the state, including their fees. Most investors choose a title company not necessarily based on costs, but on experience doing investor transactions.

So, the first key is to choose a title company and escrow officer that are highly experienced working with investors! Investors use techniques like seller financing, wholesaling, private lenders, etc. that require knowledge and experience beyond processing the closing. Without experience, the title company may not close the transaction correctly.

Split closings are another important thing to understand about title. In Utah, we’re allowed to have split—where the buyer and seller close their side at different title companies. But, a title company must issue a title insurance policy in order close the transaction. So, if there is only one title policy being issued, then both sides must close at the same title company. Let’s take a closer look at this.

Title issues two types of insurance. 1) A homeowner’s title policy that ensures the new owner (buyer) is getting clean title, and 2) a lender’s title policy that ensures the lender that title issues won’t affect their mortgage on the property. There’s always a homeowner’s policy in the transaction. But when there is no lenders policy—like a true cash deal or subject-to seller financing deal—there will only be one title company—the one issuing the homeowners policy. In these situations, both the buyer and seller will need to close at the same company.

Normally, whoever is paying for the insurance policy will pick the title company. But, in your contract, you can obligate your sellers or buyers to close at your preferred title company. As you’ll read in this and the next article, there are reasons why you want to close at a particular title agency.

Another thing you need to learn is how to read the settlement statement. This is the document that summarizes all the costs and fees associated with the closing. You should go over this document carefully with your escrow officer. There are a lot of items that I won’t cover here. From lender fees to recording fees, and payoffs to prorations, there are a lot of numbers. And you should understand how they all work—especially in different types of closings!

There are two fees that your title company will charge: 1) their “closing” fee and 2) the premium for the insurance. The closing fee varies greatly among states. It can be as low as $150 to well into the $1000s! But within a single state, there is very little difference due to the competitive nature of the title industry. This fee covers costs the title company has, like overhead, printing and etc. Generally, these fees are flexible, and you can negotiate them with your title company. But saving $50 or $100 here is not worth choosing a company that doesn’t have experience working with investors. Trust me, an inexperienced escrow officer can cost you a lot more than that! The insurance premium is set by the underwriter and cannot be changed by the title company. However, there are different types of policies, and you could choose a less expensive policy if you wanted to. We will discuss this more in the next article.

You may also see a Closing Disclosure or CD. This is the same information (numbers) that is on the settlement statement, just presented in a different format. The CD is required anytime a conventional lender is involved. But if you’re using a private lender, a cash deal or seller financing deal, you may not see this document.

Another important document to understand is the property report. This is also called the title commitment or PR. This is provided to both the buyer and seller upon opening title. It gives the current status of the property. It will name the true current owners and how they own title. This is really important! You will need to confirm that the true titled owners are the one (all of them!) that signed your purchase contract. If your contract isn’t signed by all legal owners, they can void the contract.

The PR also describes all the liens on the property and judgments against the buyer and seller that will need to be paid off through closing. This catches a lot of investors off guard. There may be liens on the property, back taxes or judgments against the seller that no one knew about. These liens can kill the deal! So, as soon as you get the property report, read it! Schedule B, Part II will list all of these. Read the property report!

In the next article, I will cover the basics of the different kinds of policies and how to choose the right one, and next month I will teach you about holding title and title issues, and give you some secrets to save you time, headaches and even money on real estate closings!

Jeffrey S. Breglio, Esq.
Breglio Law Office and REI Title
(801) 560-2180

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