We recently decided to start a series of blog posts showcasing the people typically involved in the sale of a home (besides a real estate agent, of course!). Today, I sat down with Michael Lisk to discuss the role of a title company in the sale of a home. Keep reading to learn more!
My name is Michael Lisk and I am the Chief Operating Officer of Record and Return Title Agency, Inc. Record and Return Title Agency, Inc. was founded in 1995 and is a full-service licensed title agency serving all of New York State with a specific focus on residential and commercial real estate transactions in the New York City metropolitan area and the surrounding counties.
My career in the title industry began in 2005 when I was hired as an in-house title closer for Record and Return. Being introduced to the title business as a young title closer offered me with an immediate sense of perspective and purpose. I recognized that I was playing a vital role in a critically important and often life-changing event for the purchasers and sellers on any given transaction. Moreover, it was apparent to me that the other constituents on a real estate transaction - namely the various attorneys, mortgage professionals, realtors and others – were relying heavily on the title company to ensure that each real estate transaction was closed smoothly and without issue. And while my role within the company has grown over the years, this fundamental notion – that each transaction is crucially important and that the title company’s role within each transaction is essential to its success – continues to serve as the guiding principle for myself and my colleagues on a daily basis.
A title company plays several important roles within the context of a real estate transaction. Primarily, the title company is responsible for researching and examining “title” to a particular property. Within the examination of title, through an extensive and thorough search of the land records within which a particular property is located, the title company will determine the ownership of the property and any other rights, interests or claims in and to the property (i.e. judgments, liens, mortgages, easements, restrictive covenants, etc.)
When the examination of title has been completed, the title company will then produce and disseminate to all parties on a real estate transaction a comprehensive Title Commitment (also known as a Title Report), which is a precursor to the final Title Policy. The Title Report includes a certification of ownership of title to the property, a legal description of the property, and a schedule of “exceptions” to title which must be cleared before a transaction can occur and a Title Policy can be issued. The Title Report also includes various searches run on behalf of and for the use of the parties on a transaction. These searches include Bankruptcy Searches, Patriot/OFAC Searches, Certificate of Occupancy Searches, Building Department Violation Searches, Street Report Searches, among others.
The exceptions (i.e. “title issues”) that may get raised in a Title Report and thus must be cleared prior to a Closing are too numerous to summarize here but often include the following: survey/boundary line issues, estate issues, judgments or liens against a seller, foreclosures, property tax arrears, etc. Typically, it falls upon the seller’s attorney to clear these title issues. At Record and Return, we always seek to highlight any major title issues that may impede a successful Closing and to work proactively with the attorneys to determine the swiftest resolution to any given title issue. In fact, every Title Report we produce is issued with a Red Flag cover page that highlights and brings to the fore those critical clearance issues that require immediate attention.
Once all exceptions have been addressed to the title company’s satisfaction and “title is clear”, a Closing may be scheduled. The Closing is the formal process in which “title” will pass from the seller to the purchaser of the property. This process of transferring title is achieved through the execution and delivery of a Deed made by the seller conveying all of their title and interest in the property to the purchaser in exchange for the “consideration” (typically the balance of the purchase price) as agreed to by the parties under the Contract of Sale. In most transactions, the purchaser will finance a portion of the sale with a loan that is secured by the property through a Mortgage. The Title Company sends a representative called a Title Closer to the Closing. The Title Closer plays a crucial role at the Closing and is responsible for many different functions within the context of the Closing. Chief among those responsibilities: to ensure that title successfully passes from seller to purchaser, that all documents are properly executed and in recordable form, that any judgments, liens or mortgages against the property are paid-off, that all funds are properly collected on the Title Invoice including any and all open real estate taxes, transfer taxes, mortgage tax, “mansion” tax, etc. (more on The Title Invoice later). When the Title Closer is satisfied that all of these requirements have been met, the Title Company will release the Title Policies to the new purchaser and to their mortgage lender.
The Owner’s Title Policy is the actual insurance policy that is issued by a Title Insurance Underwriter to a purchaser of a property and which insures and indemnifies that purchaser from any monetary loss by reason of any title defects, liens, encumbrances, rights or claims to that property adverse to their own. The premium paid for an Owner’s Title Policy is paid only once at the closing and covers the purchaser for as long as they own the property. Typically, the purchaser also pays the premium for the Loan Title Policy issued to their mortgage lender. The Loan Title Policy insures the mortgage lender that it has a first position lien against the property and likewise insures and indemnifies the lender from any monetary loss by reason of any title defects, liens, encumbrances, rights or claims to that property superior or adverse to its own.
However, the role of the Title Company does not end with the Closing. The Title Company is then responsible to ensure that the Deed, Mortgage and any other instruments from the closing are “recorded” timely in the County Land Records. “Recording” the Deed and Mortgage in the Land Records gives constructive notice to the world that the purchaser is the owner of the property and the mortgage lender has a lien on the property and thus ensures that any future examination of title will demonstrate the transfer of title. The Title Company then also remits all taxes collected at the closing on behalf of and at the direction of the purchaser, seller and/or lender to the appropriate agencies (i.e. the County Clerk, City Register, Receiver of Taxes, Water Department, etc.)
And, of course, the Title Company continues to have liability for as long as there is a continuation of coverage under a Title Policy issued on a transaction. It is not unusual for a title company to be called upon many years subsequent to a Closing, when a purchaser is selling or refinancing, to produce from its file certain “proofs” that were used to clear certain title exceptions. In other words, as long as the insured purchase is in title, the Title Company remains “on the hook” for any title defects it insures over no matter how much time passes.
The Title Report itself is an essential due diligence product that identifies all the relevant information about a particular property. The issuance of a Title Policy at the Closing is the culmination of many hours of research and clearance on the part of the Title Company in concert and coordination with the others parties on a transaction. Essentially, the Title Policy ensures (and insures!) that a purchaser in fact owns their home and property without claims of others. A home purchase is for most people the single largest financial transaction they will make in their lifetime. A Title Policy provides peace of mind that their home is owned “free and clear” and that their investment is protected. Many times, I’ve heard a purchaser’s attorney tell their purchaser client that the most important document that they’ll walk away from the Closing with is the Title Policy.
Typically, in New York State and especially in the New York City metro area, the Title Report is ordered by the purchaser’s attorney. This is due to the fact that it is the purchaser’s attorney who will be working most directly with the Title Company. The purchaser’s attorney has a responsibility to ensure that their clients are properly represented in all facets of a real estate transaction and will certainly want to work with a Title Company that they know to be reputable, reliable, knowledgeable and backed by financially strong Title Insurance Underwriters. However, a purchaser’s attorney cannot force their client to use a particular Title Company. If a purchaser has a direct relationship with a particular Title Company and wishes to select that Title Company to insure their title, that should be communicated with the purchaser’s attorney from the onset to avoid any potential conflict.
On a purchase transaction, the Title Report is typically ordered when Contracts are fully executed. The turnaround time for a Title Report varies by County and by Municipality but a standard turnaround time is approximately 10 business days.
Except under rare circumstances, a purchaser pays for all title-related services, including all searches, fees, and title premiums at the Closing. All title-related services will be broken down and itemized on the Title Invoice as required by New York State law and regulation. It is critically important that a purchaser understand each of the line items on a Title Invoice and to whom those charges actually benefit. Often times, the “Title Invoice” check is one of the largest checks that a purchaser brings to a Closing. However, in nearly all cases the majority of those funds payable to the Title Company are not actually retained by the Title Company but paid out to various agencies and government entities. In fact, on a typical purchase transaction with a purchase price of $1,000,000.00 and a mortgage of $800,000.00 in New York, over 80% of the “Title Invoice” consists of funds to be paid out for to government entities for Mortgage Tax, Mansion Tax, Recording Fees, and Transfer Tax! Do not hesitate to contact Record and Return for a detailed breakdown of how the funds on a Title Invoice are paid out.
Compass
480 Bedford Rd
Chappaqua, NY 10514
The Carine And Cate Team