Opening Titles and Closing Remarks

Steve Dalton commented on my last post that sometimes "title companies get in the way" of closing legitimate real estate purchases and refinances.

Title companies are at the bottom of the hill that is a real estate transaction.

And guess what? It all rolls down hill. Delays, misunderstandings, mistakes, and last minute stipulations get compressed as the closing date looms. And since the title company is the last one that generally has to do anything prior to closing, I'm not surprised, and even expect, that clients may feel that we get in the way from time to time.

What may seem as needless meddling in the consummation of the sale or refinance is usually the title company trying to resolve conflicting instructions received from one or more of the parties to the transaction.

Common conflicts between the Purchase Agreement and the Lender's Closing Instructions revolve around the Buyer's net cash back or net cash to close being outside the Lender's permitted tolerance, handling inspection and repair credits, and how the Seller's contribution towards closing cost is defined and set out on the HUD-1. In Indiana, the Purchase Agreement often requires prorating taxes in a way that is simply not possible given the inherent one to two year lag time of tax assessments.

We resolve all the conflicting instructions by requiring written clarifications and Amendments to the Purchase Agreement, Closing Instructions or Title Commitment.  If this process seems to you to be getting in the way of a closing, it's probably our fault for not explaining this correctly.

Just like you, we don't get paid unless the deal closes. Why would we want to make things needlessly difficult? We don't. All we're trying to do is resolve the conflicts so that we can close the transaction without compromising our fiduciary responsibilities to all the parties.

There's always a reason behind what a title company may require. If we don't explain it sufficiently keep asking until you understand. Sometimes, you can clear up a misunderstanding that will make things easier or even eliminate the requirement. As always, good communication is the key to a successful closing experience for you and your clients.

Good communication helps us dodge that rock at the bottom of the hill, too. For which we are eternally grateful.

Photo courtesy of Free Digital Photos. Net

This post deals with Insured Closings from the seller's side. Earlier this month I posted about Insured Closings from a buyer's perspective; what is and is not actually insured.

To quickly recap, an Insured Closing is when the title insurance underwriter (not the local agent, but the actual insurance company) issues a Closing Protection Letter (CPL) to the Buyer's Lender. Lenders require a CPL before they will send the closing agent any documents or funds.

The CPL provides no protection directly to the Seller. The Seller has no direct right of action against the title insurance underwriter as the Buyer and Lender do. Where the Seller's interests are aligned with the Lender, the Seller will enjoy a measure of indirect protection.

In our market, the Seller pays for the owner's title policy. This sometimes leads to a misunderstanding about the occasional post closing matter that requires the seller's cooperation. Most often it will be a payoff that is short or a payment that needs to be made that we were unaware of. A Seller might say to me "It's not my problem. It was an Insured Closing, wasn't it?" My answer is that "Yes, it was an insured closing. We insured the Buyer that you owned the property when you sold it to them. We didn't insure you that your lender gave us the correct payoff information."

As a Seller, how can you protect yourself? First, carefully review the closing statement. Particular attention should be paid to payoff amounts, credits to the Buyer, prorations, and other payments that you agreed to in the Purchase Agreement. Once you sign the closing statement, you are accepting it as correct.

Secondly, do not "dry " close (sign everything, leave it and hope the Buyer's Lender sends funds) unless there is a written agreement including you,  the Buyer, and the Closing Agent providing a mechanism for you to get your deed back if the transaction is not funded within a specified period of time. In the current environment of dynamic loan approvals, this couldn't be more important.

Finally, consider the reputation and local expertise of the title company that you select for the transaction. When you select John Bethell Title Company, Inc., your sale will be handled by knowledgeable people that care about you and your community. We will do everything we can to ensure that your transaction happens on time and with minimum anxiety. When we run into you at the Kroger, we won't be embarrassed. We won't duck behind the bread rack. We will look you in the eye and smile.

If you have any questions about closings or title insurance, please leave me a comment or email me directly.

In Indiana, we close and disburse at the closing table, not in Escrow. Most title companies in Indiana and many elsewhere advertise Insured Closings as well as title insurance and other services. But what is an insured closing? It is a broad term that is ripe for misunderstanding.

An insured closing occurs when the title insurance underwriter - that is the actual insurance company whose title policy is going to be issued - provides to the Buyer's new Lender a Closing Protection Letter (CPL for short). The CPL is provided before the Lender will send the Closing Agent documents or funds. The CPL assures the Lender against loss by reason of the Closing Agent's failure to follow the Lender's closing instructions and/or failure to properly handle the funds entrusted to the Closing Agent by the Lender. The American Land Title Association CPL (here http://www.alta.org/forms/ ) used by most title underwriters contains a clause extending this protection to the Lender's client, the Buyer.

The Buyer is tagging along on the Lender's instruction that the Closing Agent not disburse any funds until the Buyer owns the property and the Lender's mortgage is a first lien. This instruction requires the Closing Agent to obtain and record the deed(s) transferring title to the property to the Buyer and also make certain that any liens of the Seller are paid off at closing and released.  In the event these instructions are not followed and a problem ensues, the CPL gives the Lender and the Buyer a right of action directly against the title insurer, a large company with lots of assets, instead of the Closing Agent which may be a much smaller company with little or no assets. The CPL functions in similar fashion to a bond in that it transfers much of the Lender's and Buyer's closing risk to the title insurer.

While the CPL provides assurance to the Buyer that they will end up with title to the property and all of the Seller's obligations will be paid off, it does not provide any assurance that other parts of the closing statement are prepared in accordance with the Purchase Agreement or other instructions of the parties. Buyers should still carefully review the accuracy of the closing statement including the tax proration, repair credits and other matters and not just fees related to acquiring title, discharging liens or loan charges. By signing the closing statement, the Buyer is agreeing that it is correct. If an error is later discovered, the Buyer's only recourse will be against the Closing Agent and not the title insurance company. Reputable title and closing agents carry Errors & Omissions insurance to protect themselves against such problems.

The CPL provides no protection directly to the Seller. I will cover Seller's concerns in another post later this month.

As you can see, not everything about your closing is insured. You can minimize the risks by choosing a title company based upon its local expertise and reputation, not just its price. When you choose John Bethell Title Company, Inc., you'll work with experienced people that know you and your community. You won't have to navigate a call center matrix to get an answer. The people you need to talk with are not in a cube farm 1000 miles away. My office is just behind the front counter. I'm there to help - everyday.