Five Questions on Friday with Zach Bay
Title Companies, Escrow, and Title Insurance: A Comprehensive Guide with Zach Bay of WFG Title
This week, we were so happy to be able to chat with Zach Bay from WFG Title.
Question 1. What do title companies do?
A title company makes sure that the title to a piece of real estate is legitimate and then issues title insurance for that property. Title insurance protects the lender and/or owner against lawsuits or claims against the property that result from disputes over the title.
Title companies also often maintain escrow accounts — these contain the funds needed to close on the home — to ensure that this money is used only for settlement and closing costs, and may conduct the formal closing on the home. At the closing, a settlement agent from the title company will bring all the necessary documentation, explain it to the parties, collect closing costs and distribute monies. Finally, the title company will ensure that the new titles, deeds and other documents are filed with the appropriate entities.
Question 2. People often use the words Title and Escrow interchangeably; is there a difference?
Title Insurance protects an owner’s or a lender’s financial interest in real property against loss due to title defects, liens or other matters.
Escrow is an agreement in which a neutral third party assembles and manages many components of the Real Estate Transaction. The Escrow Agent acts on behalf of the buyer and seller under the Escrow law as set forth by the State of Oregon Real Estate Agency. Escrow carries out written instructions relating to the transaction and insures mutual agreement of the written terms.
Question 3. When does title transfer to a new home owner?
Title Transfers to a new home owner when escrow has all the funds needed to record the deed in the county recorder’s office. Once the recorder has recorded the conveyance document to the new owner title is official transferred.
Question 4. Does it matter which title company you use?
A title company plays a very important role during a real estate transaction. It conducts the title search and ensures the title is clear and the sale is legal. But your title company assists with paperwork and communication between the parties, facilitates document filing and recording, and may even serve as an escrow agent.
Choosing an incompetent, slow or irresponsible title company could jeopardize your real estate transaction. And there is often more than one side that wants to do the choosing–from a real estate agent, to the lender and seller’s attorney or broker, everyone has their own agenda. Besides the obvious financial aspect, there are also other things to take into consideration when negotiating who pays for each part of the title insurance. The person who pays for both policies is typically the one who gets to choose the title company that issues the insurance. If the policies are split, the person covering the Owner’s Policy is someone who has the biggest say in the matter.
Both buyers and sellers (or their representatives), and often even lenders, want their trusted title company to perform the closing. Sometimes, real estate brokers may specify the company they want to use in the property listing or a real estate agent will work their favorite title company into the purchase offer. It often makes sense for the buyer or buyer’s agent to make the choice because, after all, they are the ones benefiting from title insurance. Moreover, according to the Section 9 of the Real Estate Settlement Procedures Act (RESPA), the seller is prohibited from requiring the buyer to use a specific title company as a condition of the sale. The seller may still request their chosen company to be used, but it can’t be a “take it or leave it” scenario, where buyer’s refusal would terminate the deal.
In some situations, especially during a mortgage refinancing, the lender might ask you to use their preferred title company. They have the right to do this, and because many homeowners don’t have their preferences, the lenders often get their way. However, if you have a trusted title company you’ve used before or have a recommendation from a relative, you can ask the lender to go with your choice.
If you don’t have your own preference, it’s wise to go with your agent’s choice. If, however, someone recommended you a good company, know that as a buyer you have a say in this matter. Just make sure that the company you suggest has the knowledge and expertise to handle your transaction, no matter how complex it is.
Question 5. What is title insurance? What does it cover?
You probably know that title insurance is typically required by the lender and is, in general, a good policy to have. But did you know that title insurance is actually two separate policies?
- Owner’s Title Insurance (OTP) is known as Owner’s Policy. It is issued in the amount of the real estate purchase and is obtained at closing for a one-time fee. OTP protects the buyer from any mistakes, forgery or claims against the title.
- Lender’s Title Insurance (LTP) is known as Loan Policy. It is issued in the amount of the loan (unless it’s a cash transaction) and is also obtained at closing for a single premium payment. LTP protects the lender should a problem with the title arise after closing.
Despite the clear labeling–owner’s and lender’s insurance–respective title insurance is not always paid by the parties it protects. For example, your bank is unlikely to pay for the lender’s policy. As a buyer, you will probably be picking up the tab. Even if the lender pays this expense initially, it may later defer the costs to you. Owner’s Policy is the responsibility of the buyer, but in your contract of sale you may negotiate that the seller pays it, or maybe even the lender’s portion too. Additionally, local state and county laws may have provisions for each party’s responsibility when it comes to title insurance.
Have more questions or want professional advice on buying or selling a home?
Contact us at [email protected] or (503) 926-5213. We’re here to address all your real estate needs!