Demystifying Title Companies & the Real Estate Closing  

  By Howard J. Willis *

Many buyers and sellers have had at some point in time a less than positive experience in their real estate closing. Title companies and the many employees involved in the closing details tend to be the focus of the occasional closing complaint, “How could this happen now?” or “You mean we don’t get our money today?” A better understanding of the role and responsibilities of the parties involved in the closing process should save you time, money and frustration so let’s examine a few areas of this potentially confusing last step in the purchase or sale of your home.  While refinancing is not addressed here, it also requires a title company and related expenses.

 Who Do Title Companies Work for and Serve?  Title companies serve several masters. First and foremost they must comply with their title insurance underwriter’s requirements. Second, they act as an un-biased clearing point for the bank or lender. They have a fiduciary duty to strictly comply with the conditions imposed by the borrower/buyer’s lender.  And last but not least they must communicate with and serve the buyer and the seller and their realtors.  So there are usually six or more contact points that the title company staff must deal with.        

What Do Title Companies Do?  Title agents search records for any problems that could "cloud" the title that could affect the buyer's ability to buy, use and sell the property. Mainly they look for problems in the recording of easements, court judgments, liens and taxes. They look out for paperwork errors. For example, a title agent may identify a missing signature on a document from a previous closing and take steps to correct the oversight. Title companies receive funds and disperse to the parties. The reserves for taxes and other accounts are not held by the title company after closing. The special escrow accounts to insure that such things as private mortgage insurance (PMI), property taxes and homeowners insurance are paid on time are managed by lenders or other escrow agents. 

How Are They Regulated? 

Title companies are regulated at the Federal level by RESPA (the Real Estate Settlement Procedures Act). This law is administered by the Housing & Urban Development Agency (HUD) as a law that governs how mortgages are sold to consumers. The State of Florida Department of Finance & Insurance regulates title companies under the Florida Marketable Title Act (MRTA). Some title companies are members of the FLTA, the Florida Land Title Association, Inc., which is a non profit trade association that is still dedicated to promoting shared goals of education, professionalism, ethical standards, and to effectively advocate member concerns.

A Cost of the Buyer’s Loan Referred to as insuring the past, title insurance protects against past events, whereas other kinds of insurance protect against the possibility of future events.  "Title insurance is a form of risk-avoidance insurance, so the search and the elimination of problems that are identified in that search are very basic costs," says Doug Yount, President of EWM Title.  Doug explains that there are two kinds of policies -- one for lenders and one for owners. The required title insurance only protects the lender, so the buyer usually takes out an owner's title insurance policy as well.  If the property is relatively new, you may be able to lower the cost of title insurance by asking your insurer for a reissue rate. With every mortgage, the lender requires lender's title insurance. The lender is securing the money it loans to the buyer with the home as collateral. If the lender can’t be sure of a marketable title, the lender will not loan the money. The insurance pays for any financial loss and attorneys fees resulting from a challenge to the property's title. For example, if a missing heir suddenly appears and claims an ownership interest in the property, the title insurance pays for the legal fight. If the missing heir wins, the title insurer compensates the policyholder for financial losses.

Better Shop Around
One of the more significant fees is the title insurance policy. In the State of Florida, the rates on the premiums for Florida Title insurance are “promulgated” or regulated and the only costs that differ between one and the other are the actual fees involved with the search and examination, closing, etc. The rate formula is $5.75 per $1,000 of the purchase price to the first $100,000, and then drops to $5.00 per $1,000. Although you may feel that you don't need Florida Title Insurance, having it can mean everything in that unusual situation.

If a company wants to charge you for not performing a service, try to get the fee eliminated. HUD sent a clear message when it told Arvida to stop charging $300 for choosing a non-Arvida-affiliated title agency. Builders, lenders, mortgage brokers and title agencies are entitled to a profit for the valuable work they do. Under federal law, they can't engage in kickbacks or mark up third-party fees, but they have a lot of leeway in what they charge for the services they perform. Lenders and brokers charge myriad fees, including administration fees, application fees, commitment fees, document preparation fees, processing fees, underwriting fees and wire-transfer fees. This is where they're supposed to make their profits -- not by charging you double what they pay to see your credit report. Shop around and get a minimum of two to three title company fee estimates.

Keep in Mind These Pointers

• Buyers - get your information to the lender and Title company on-time: Tania Piedra, President of Title Executives in Weston, acknowledges that the number one issue for most buyers and sellers is the occasional delay in a closing. “Delays due to the lack of a timed delivery of the funding by the Lender are what we work hardest to prevent. But we are only a liaison in the middle of all the parties and are dependent on the buyer and the lender to have completed their work before the day of closing” states Tania.
• Buyers - get your insurance shopped and committed at least a week before closing.
• Realtors – Open up the lines of communication between the buyer and Title Company. Get the contact info in as soon as possible, and fax the details in to the title company.
• Sellers – bring driver’s license ID, all keys, garage and gate clickers, and a list of those home services you recommend.
• Buyer and Seller: All spouses/others on the deed and/or who are on the Homestead Exemption must sign off at closing or make arrangements to sign early. No-show means no-close.
• Seller and Realtor – be sure the seller is not a foreign national or must comply with FIRPTA rules or pay 10% at closing.  Be sure the tax number is on the real estate sales agreement.
• Buyers & Sellers: Buyers bring your original lender good faith estimate, and both bring your proposed settlement statement. Compare your approved quotation to the actual closing statement of expenses.
• Sellers: Until you’re paid, try to avoid what the insiders call a “DRY” closing. This is where no money is exchanged due to delays or errors usually by the lender.
• Buyers: Remember you have a legal right to review your closing statement (insiders call this the “HUD”) for a minimum period of (24) hours before the closing. This rarely occurs anymore, but you are within your rights at closing to ask for more time if you see something you question.
• Realtors – Be sure to request the HOA or condo documents right away. Don’t wait to be asked. And go ahead and arrange for your buyer to have a screening appointment with the Association.
• Sellers – Go ahead and have a file ready for the title company consisting of your mortgage pay-off statement (or proof of satisfaction if paid), the “owner’s policy” of title insurance, and HOA or Association by-laws, contact information forwarding address, marital status, etc.
• Sellers & Realtors: Don’t forget to give early notification if the closing will be a “mail-away”.
• Buyers & Sellers: Any unresolved issues involving the home, furnishings, occupancy, etc. must be resolved days before closing, otherwise you will pay in delays and headaches. Be sure to schedule walk-through inspections early enough from the closing hour to avoid delays.

 The day of closing should be an enjoyable, stress-free experience. By selecting a reputable title company that prides itself on great customer service you will benefit from having done your homework and cooperated with what the parties need to close on your sale or purchase.

     Let’s look at the numbers  for a $400,000 Home Purchase @ 80% financing400,000 Purchase of fee for a $400,000