When you buy a home, in most cases you will be required to obtain title insurance. Title insurance protects your legal ownership of the property you buy. The insurance policy will be subject to certain exclusions and exceptions. Prior to issuing the insurance, the title company will conduct a thorough search of public records to determine the exceptions to coverage, such as any liens or restrictions that affect ownership of the property.
For example, if the seller failed to pay property taxes, the government would have a lien against the property. The property could be seized and sold to pay off the seller’s back taxes. If you were to purchase the property without knowing about the unpaid taxes, you could end up having to pay the back taxes yourself or risk losing the property.
When you purchase title insurance, the insurance company informs you of any outstanding liens so that you can require the seller to satisfy the liens before you close.
Prior to your closing, the title company will issue a commitment for title insurance. This commitment will indicate:
The commitment for title insurance is not the actual policy, but it guarantees that the policy will be issued if conditions specified in the commitment are met. In almost all real estate transactions, separate title policies will be purchased for the lender and the buyer.
As the buyer, you would typically purchase the lender’s policy, which covers only the amount of the loan. The buyer’s policy — which insures you, the buyer — is for the full sales price and it is often paid by the seller.
The final activity at closing involves the distribution of the money generated by the sale. It’s the closing agent’s responsibility to present checks to: