What does a title company do?

In the wake of foreclosure problems stemming from improper documentation and representation, a title insurance policy has never been more valuable than it is right now in this current real estate market.

Clients often ask: What exactly does a title company do? And the easiest answer that I give them is, "Take a look at our website and view the videos."

At Federal Title, we conduct an extensive search of public records to verify the seller's right to transfer ownership. The purpose of all this research is to discover claims or defects (a.k.a. "clouds") that limit the owner’s right in transferring the property.

Lenders require title insurance when the purchaser obtains a mortgage to finance the purchase; this type of insurance is often called a lender’s title insurance policy to cover the bank’s interest in your property and to safeguard first position as a lien holder on your property.

At the time of closing an owner’s title insurance policy is also issued which protects you as the purchaser at the closing. An owner’s policy is your assurance of protection against economic loss if a title defect is ever discovered and a claim filed against your property.

The insurance premiums are only collected once, and your coverage will remain consistent for as long as you or your heirs retain an interest in your property or until you refinance the property at which point a new policy is issued.

Without the protection of an owner’s policy, you may be in jeopardy of losing your investment which stems from a cloud on title that does not appear in the public records such as:

  • Forged legal instruments (deeds, mortgages, wills, releases of mortgages)
  • Improperly recorded legal documents
  • False impersonation of the true property owner
  • Undisclosed heirs
  • Issues involving improper marital status
  • Documents executed under false powers of attorney
  • Deeds drafted by persons lacking legal capacity
  • Undisclosed spouses
  • Issues of rightful possession of land; which arise when a foreclosed property owner claims that they did not receive proper notice of the foreclosure.

In the event that a claim is filed against you as owner of your property, the title insurance will cover your legal expenses, court costs and related fees. If the claim against the property is valid, then the title insurance company will reimburse you for your loss up to the amount of the policy.

At Federal Title our attorneys are diligent in reviewing all documentation in an effort to assist buyers with the often times unexpected yet frequent legal matters that arise during the purchase and sale of real property. At Federal Title and Escrow there is always an attorney title agent on each transaction that is prepared to explain, negotiate and if needed, represent your legal interests in every transaction.

Reasons why you should hire a Federal Title attorney for your purchase of a short sale property

In the current economy, short sales have become an increasingly common part of our day-to-day business. Due to declines in market value, the contracted sale prices on many homes are not enough to satisfy all of the liens encumbering the property and to pay the transaction costs.

Therefore, inherent in these types of transactions is the need for legal advice and guidance that is separate and distinct from the run of the mill title service provided by non-attorney title agents.

Generally, non-attorney title agents may perform the following functions:

  1. Search the title and identify superior and subordinate liens;
  2. Gather information and prepare the form required by the lender to obtain a payoff statement;
  3. Obtain estoppel letters from each lien holder in which they commit to release their lien upon payment of a certain amount and/or satisfaction of other conditions;
  4. Prepare HUD-1 closing statements;
  5. Communicate information between the parties to the transaction; and
  6. Obtain payoff amounts, complete the closing and issue the requisite insurance policy.

These represent the bare-boned services provided by any title company and unfortunately, in any real estate climate, these general functions are not sufficient to protect the buyer and/or seller when unforeseen issues arise.

On the other hand, attorney title agents enhance the title services provided by being able to provide the client with an abundance of services, a few of them being:

Give opinions or explanations of the legal significance of any documents involved in the transaction;

  1. Clear title issues which require the services of licensed real estate attorneys;
  2. Counsel homeowners that sell their property in a short sale transaction as to the possibilities or legal ramifications of deficiency judgments and the impact of the proposed short sale on those issues;
  3. Counsel homeowners as to the strategy of negotiating a short sale as it might affect pending or future foreclosure and the implications of legal enforcement actions or other legal rights and remedies;
  4. Counsel the homeowner on the impact of filing for bankruptcy protection generally or as it relates to a short payoff and/or foreclosure; and
  5. Counsel the buyer as to whether the proper actions were taken in a pending foreclosure and whether there were any omissions that may cloud title.

At Federal Title our attorneys can assist buyers or homeowners with the often times unexpected yet frequent legal matters that arise during the purchase and sale of real property. At Federal Title there is always an attorney title agent on each transaction that is prepared to explain, negotiate and if needed, represent your legal interests in every transaction.

Investing in Florida real estate

People have successfully built fortunes through real estate investment for decades. In the current housing crisis, many more people are finding success by snatching up the many foreclosures available. To reduce the risk of failure, beginning real estate investors and first-time homebuyers should research the many different aspects of property investing before getting started.

Here are a few basic things to consider first:

• Personal goals
• Level of responsibility
• Location
• Current market

All of these factors can be addressed in a business plan. Real estate investing is a business, and just like any other business, should include a “road map.”; Having a business plan or financial goal will help keep you on track, reduce frivolous investments, and help you reach your goals faster. Let’s look at each aspect a little closer.

Personal goals

First of all, it’s important to have specific goals. Do you want to set up a residual monthly income through rental properties, or would you rather buy and sell properties for a quick profit? Are you interested in commercial properties or residential? When outlining your goals, be as specific as possible.

Responsibility

Next, what level of responsibility are you looking for? If you’re purchasing properties for resale, more renovations are usually needed. You'll also need to consider resources needed to list the property and find a buyer. Rentals often require renovations as well as regular maintenance and the time consuming task of finding tenants. It’s possible to hire others to do the property management side of things, but that will add more costs.

Location

The location of a property is important; not only what area of the country, but also what part of the city or town, and even what section of a street the property is on. The location affects the value as much as the appearance of the home.

Assess the market

The final consideration new investors and homebuyers must make involvesthe current market. For example, in Florida, because so many people are currently losing their homes to foreclosure, it’s more of a rental market than a selling market. Either way, it’s important to look at the values of other properties in the area. This involves looking at what houses in the area have recently sold for and what price rentals are bringing in.

Don’t get discouraged; investing in real estate really is a great way to build wealth. It’s just important to learn everything you can before diving in. There are many investment brokers that deal strictly with property investments. Contact one in your area, or the area you wish to invest in, and ask them for advice.


About the author

Jennifer Hill and the agents at Realnet of Tampa Bay are experts at finding the best investment property for sale. Setting your goals and knowing how to get there are vital to your success! Realnet can help you determine the best investment properties to help you meet those goals.

Case study: Title insurance and cash-only deals

I was glad to see an article the other day in the Wall Street Journal that more closely reflects our experience in the Coral Gables, Pinecrest, Miami Beach, Key Biscayne and Key West areas. There is no doubt that the local Florida real estate economy is being supported by cash buyers whom are often either foreigners or “snow birds.”

Whether or not real estate prices have “bottomed out,” the fact remains that there are excellent buying opportunities for those with enough cash or credit to buy in this economic climate.

Cash buyers are often reluctant to buy title insurance since it is not required when paying cash for real estate. Title insurance is viewed as an esoteric commodity that’s imposed by lenders but doesn’t actually serve a purpose.

Thus, buyers paying cash for real estate who are not required by the lender to purchase title insurance often decide to forego purchasing title insurance which is always a bad idea.

I have a client who came to us after having paid cash for a beautiful vacation home in Florida. My client bought the home from a bank that had obtained it through a foreclosure proceeding.

Because my client viewed the title insurance as an added, unnecessary expense, he opted not to buy title insurance. After spending hundreds of thousands of dollars in remodeling his vacation home, my client received a summons and complaint from the previous owner of the home stating that the previous owner was never properly notified of the foreclosure, thus the foreclosure was void, and the resulting sale of the home to my client was also void.

A quick review of the docket indicated that a person with the same name as the previous owner of the property had been served and had filed an affidavit with the court stating that he was not the owner of this property and they had served the wrong person.

Had my client bought title insurance he would be protected for the amount of money that he paid for his vacation home, and would have possibly avoided the entire predicament, as a settlement attorney at Federal Title would have reviewed the foreclosure docket to make sure that all of the proper steps had been taken in the foreclosure.

In Florida, get a title search before entering into a short sale agreement

In the past few years, short sale transactions have become more prominent in Florida due to the decline in the real estate market. Buying a home in a “short-sale” means that the lender is accepting less than the total amount due on the existing mortgage.

Most homes that are sold as short sales are already in the foreclosure process and as real estate values decline more lenders are accepting short sales or discounted payoffs, rather than holding a large inventory of real estate on their books.

Many people are under the impression that because they are buying a home in foreclosure through the short sale process, that they are receiving a home that is free and clear of liens and similar encumbrances. This is not the case; the new home owner will be responsible for liens that pass with the property such as property-tax liens, IRS liens, homeowners’ association liens and municipal liens.

Once a bank approves a short-sale, there is frequently a sense of urgency on behalf of the bank and the seller to sell the property which is often in foreclosure. The purchase and sale agreements are regularly as-is and void of title, lending, appraisal and inspection contingencies. Therefore, the buyer is often in the dark about the condition and state of the property that they are buying.

Serious buyers should proceed with caution and order a title search, which is often obtainable within 24 hours, prior to proceeding with entering into the short-sale purchase agreement for the purchase of the home. Once the title search is reviewed, the buyer may find that due to the existing liens, the house they were thinking of buying is not such a great bargain.

Here at Federal Title our attorneys can assist the buyers with negotiating with the lien holders directly to extinguish the liens for less than face value prior to closing. Federal Title will also assist the buyer in obtaining an owner's title insurance policy which protects the buyer from title defects that weren't disclosed by the seller at or before closing. Using Federal Title and Escrow Company will ensure that you do not get the “short end of the stick” on your short sale.

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