The title company is an integral part of the mortgage loan process. The title search and title insurance commitment certify that the borrower or buyer will truly own the subject property clearly and cleanly.
To accomplish this certification, the title company will examine the ownership and lien records about the property:
Analyze the description. The title company will analyze the legal description to the property to ensure that the property actually does exist where it claims to exist. More to the point, the title will serve to assure the buyer or lender by confirming the subject property.
Trace the succession of ownership. The title company will also examine how ownership of the land has been transferred from the first legally recorded owner of the property down to the current owner. This is often called the chain of title. The title company will ensure that there were no questionable breaks or interruptions in the succession of ownership—which may jeopardize the real ownership status of the current owner.
Review the restrictions against the property. The title company will then review and report all unreleased restrictions against the property, such as recorded encumbrances, easements and liens.
Once the title company has completed its search and examination of public records, it will describe its findings to the person or company who ordered the title search. The title company will then issue a commitment to insure its discoveries. The title insurance does not go into effect until the title insurance premium is paid, which usually occurs during the loan closing.
The title insurance premium is a one-time charge and varies according to the title company. The title insurance protects the owner and lender against possible losses from title-related problems.
For example, consider the hypothetical situation of a Native American tribe winning a claim in court that a person's house is on top of their ancestral burial grounds and the court orders the homeowner to surrender the property. The title insurance would protect the homeowner by either (1) paying the tribe for the land or (2) paying the original mortgage amount plus down payment and losses to the current owner.
For more information, see the "Title and Title Insurance" article.
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