You searched long and hard and finally found just the place to buy; you located a mortgage lender, the real estate broker has drawn up the sales contract and your attorney has reviewed it. Now it`s time for a different kind of search.
This is a search of public records to determine whether the person selling the property is the true owner and has the right to be selling it. The title search also reveals whether there are contractors, other individuals or governmental bodies who have unpaid claims against the property. Without evidence of a ”clear” title, an insurance company won`t issue a policy. And homeowners need title insurance to guard against possible future claims to their property. Besides, lenders require it as a condition for a mortgage.
”Buying a home is the single biggest investment most people ever make. A person would be foolish not to protect that investment with title insurance,” said Dominic Mancini, a Hinsdale attorney who specializes in real estate law. A 1975 graduate of De Paul University`s College of Law, Mancini handled all real estate law and litigation for Palmer & Blackman, under the tutelage of the late Joe Blackman, ”a lawyer`s lawyer who taught me a lot,” then opened his own practice eight years ago.
”You want to make sure the seller actually owns what you`re buying,” he said. ”You may find the title is in the name of the seller and his deceased wife. Or maybe the seller has put the property in trust or in his children`s names.
Lien times
”Are there any mechanic`s liens or judgments against the owner? How many mortgages are there on the property? Are there any unpaid real estate taxes or assessments? Have sanitary district bills been paid? Has the owner paid all federal income taxes? If it`s a condo, are there any liens against the homeowners association?
”You want the answers to these and other questions and a title search should produce them so that any defects can be cleared up before the closing.”
But even though a search is conducted and the property changes hands according to contract, some unforeseen circumstance could turn up later to threaten the title and, thus, the owner`s right to it. A forgery, an error in the records or a mistake in name spelling are among the hazards.
Mancini ranks forgeries as perhaps the greatest danger, followed by mechanic`s liens filed after a closing.
Con jobs
”It`s amazing to see what lengths dishonest people will go to to con innocent victims. I`ve seen cases where renters have forged documents and sold property right out from under absentee owners. Title insurance protects against forgeries,” he said.
Usually, a title search is ordered by the seller`s attorney after the sales contract has been signed, the home inspection report has been filed and the mortgage lender has presented the buyer with a written agreement to make the loan. A legal description of the property is needed to set the process in motion.
The information sought is available from public records in the office of the county clerk or recorder and from what the industry calls ”plants”-tract books, index cards, punch cards and computer disks, for example, which are owned and maintained by title companies.
”There are a few large title insurance companies, such as Intercounty Title Co. of Illinois, Attorneys` National Title Network and Chicago Title & Trust, probably the granddaddy of them all,” Mancini said. ”Others have recognized that it`s a lucrative business and have entered the field within the last seven to 10 years. That`s worked to the advantage of consumers because greater competition has lowered title expenses.”
Three to five days is the average time it takes for a title search, according to Chris Abbinante, general counsel for Chicago Title & Trust`s Central Division, which includes 27 states plus the western half of Pennsylvania.
Searches are conducted by employees of Chicago Title & Trust, which owns its own plant in Cook County; the same is true for Houston-based Stewart Title Guaranty Co., whose principal Chicago agent is Intercounty.
Step by step
”There are several steps involved in a search and each requires a particular skill,” Abbinante said. ”For example, key punch operators keep our records current by feeding new data into our computer system every day;
searchers gather the data, which is analyzed by examiners, who in turn report findings to their supervisors. It`s a progressive thing, and people who learn one aspect of the work often move up to the next level of responsibility.”
In analyzing search data, examiners seek answers to many questions, including these: Have all taxes and special assessments been paid? Has the death of a former owner or the filing of a will affected title to the property? Are there undisclosed heirs? Is the John Smith affected by a judgment the same John Smith named on a title?
Following the search, the title company issues a commitment to insure, which states the conditions under which it will do so. The document includes a legal description of the property, name(s) of the present owner, names of those to be insured, the amount of coverage and recorded items that affect the title, such as liens and special assessments.
Two kinds of title insurance policies are issued, one to the buyer, the other to the mortgage lender. The seller pays the cost of the buyer`s policy, which is based on the sale price of the property; the buyer pays the cost of the mortgage lender`s policy, which is based on the amount of the loan, and is therefore less expensive.
At Chicago Title, the fee for the title search and insurance is based on the sale price of a home, said Abbinante.
”In some areas, fees for the search and insurance are listed separately, but in the Chicago area the fee is all-inclusive,” he said. ”Here at Chicago Title, the one-time fee on a $100,000 house is $400, which covers the search plus $100,000 of title insurance.”
Fees vary
”If a house is priced at more than $100,000 there is a charge for each additional $1,000 of the cost. Rule-of-thumb puts this fee at $1 per $1,000, although it could vary, depending on the insurer,” said Mancini. ”Title insurance for the lender of $80,000 to finance a $100,000 house would cost the buyer $125.”
Should a claim be filed against a homeowner`s title, the insurance company will defend the title without further charge and pay losses within the coverage of the policy.
”There are a lot of costs connected with the transfer of property and people do wonder whether title insurance is really necessary,” said Jack Kuhlman, a Hinsdale attorney. ”In 25 years I`ve seen fewer than five claims, but that`s not to say other lawyers don`t see more. The thing is, if it`s your title the claim is against, you`re mighty glad you`re insured.
”I remember one case in which the Village of Hinsdale voted a special assessment for an area south of 55th Street, but by the time the $5,000 bill arrived at one house, it had changed hands. The title insurance company picked up the tab.”
Kevin Cooney, general counsel for Attorneys` National Title Network Inc. in Chicago, noted there has been an increase in claims in the last few years. ”There`s more incidence of fraud during recessionary economic conditions and typically more judgments and liens, because when times are hard some people can`t or don`t pay their bills,” Cooney said. ”Increasingly, we`re seeing bankruptcies, but that does not reduce the obligation to pay.”
Jim Maher, executive vice president of the American Land Title Association in Washington, D.C., agrees that the number of claims has been rising.
”The national average of claims against title insurance companies is 10 percent, up from the historical figures of 3 1/2 to 4 percent, which we saw into the early `70s,” he said. ”There`s been a steady incline from the late `70s. Some companies may experience numbers as high as 15 or 16 percent, but the national average is 10.
”Every recession has resulted in a higher number of claims. But there could be other underlying factors. With the crush of business in the mid-`80s, there was a need for more personnel (in the title business). Some of these people were not well trained and the quality of work suffered, which could very well have an effect on the number of claims filed.
”The volume of business done in certain markets and the way business was done have had an effect,” Maher said.
Wherever you live, chances are you may never use your title insurance. But with your home the biggest investment you`ll probably ever make, as Mancini said, ”you`d be foolish not to have it.”
