Module 3: Title Documents

Title documents play a crucial role in mortgage lending as they establish ownership rights and provide evidence of a property's legal status. These documents include the title deed, title insurance, and various reports and certificates that verify the property's history and any potential issues that may affect its ownership. Title documents help ensure a clear and marketable title, providing security for both the borrower and the lender.

Title Commitment/Preliminary Title Report

A title commitment, also known as a preliminary title report or binder, is a document provided by a title insurance company during the mortgage lending process. It outlines the conditions under which the company is willing to issue a title insurance policy for the property. Here are key points to understand about a title commitment:

Purpose:

The title commitment serves as a commitment from the title insurance company to provide a title insurance policy upon the successful completion of the mortgage transaction. It indicates the conditions that must be met, any potential issues with the property's title, and any requirements that need to be addressed before the policy can be issued.

Title Search:

The title commitment is based on a comprehensive title search conducted by the title company or its agent. This search aims to uncover any existing liens, encumbrances, or defects in the property's title history. The title commitment will list all parties with an interest in the property, such as lenders, previous owners, and any restrictions or covenants associated with the property.

Title Exceptions:

The title commitment will include a section known as "title exceptions" or "Schedule B," which lists any issues or encumbrances that are discovered during the title search. These exceptions may include existing liens, unpaid taxes, judgments, easements, or other claims on the property. The lender and the borrower need to review these exceptions to ensure they are acceptable and can be resolved before closing.

Title Insurance Coverage:

The title commitment will specify the type of title insurance policy that will be issued upon the completion of the transaction. Title insurance provides protection against financial losses resulting from undiscovered defects in the property's title. It ensures that the buyer and the lender have clear and marketable title to the property.

Reviewing and Clearing Title Issues:

The borrower, along with their attorney or title agent, should carefully review the title commitment to understand any title issues and their potential impact on the transaction. If there are unacceptable exceptions or defects, efforts may be made to resolve or clear them before closing. The lender will typically require that all major title issues are resolved before funding the loan.

The title commitment is an important document in the mortgage lending process as it provides valuable information about the property's title status and sets out the conditions for issuing title insurance. It helps identify any potential issues that need to be addressed to ensure a clear and marketable title, providing peace of mind to both the borrower and the lender.

Tax Certification/Bill

In the context of title documents, the Tax Certification, also referred to as a Tax Bill or Tax Information Sheet, is a document that provides information about the property's tax status. It is typically obtained during the mortgage lending process to ensure that the property taxes are current and to estimate the ongoing tax expenses for the borrower. Here are key points to understand about the Tax Certification/Bill:

Purpose:

The Tax Certification/Bill is obtained from the local taxing authority or county treasurer's office. Its purpose is to verify the current status of property taxes, including whether they are paid in full, any outstanding amounts owed, and the due dates for future tax payments. It helps determine the financial obligations related to property taxes for the borrower and lender.

Property Tax Information:

The Tax Certification/Bill includes important details about the property's tax assessment, such as the assessed value, tax rates, and any applicable exemptions or discounts. It also provides information on how the taxes are calculated, the tax year covered by the certification, and the frequency of tax payments (e.g., annual, semi-annual).

Tax Payment Status:

The document will indicate whether property taxes have been paid up to date or if there are any outstanding amounts owed. This information is crucial for the lender as they want to ensure that the borrower's property tax payments are current, as delinquent taxes could potentially result in a lien on the property.

Escrow Accounts:

If the borrower has an escrow account established with the lender, the Tax Certification/Bill helps determine the amount to be set aside in the escrow account to cover future tax payments. The lender will calculate the estimated tax amount based on the tax assessment and payment schedule provided in the document.

Verification and Adjustments:

The lender will typically verify the information provided in the Tax Certification/Bill to ensure its accuracy. If there are discrepancies or adjustments required, such as prorated taxes due to a pending property sale, the lender may make necessary adjustments to the borrower's loan terms or escrow account.

Ongoing Tax Obligations:

The Tax Certification/Bill helps borrowers estimate their ongoing property tax expenses. It enables them to budget for future tax payments and understand the financial obligations associated with owning the property. Lenders may require borrowers to maintain sufficient funds in their escrow accounts to cover property tax payments.

CPL, Wiring Instructions, and E&O Insurance

CPL, Wiring Instructions, and E&O insurance are important components of the title process in mortgage lending.

CPL (Closing Protection Letter):

A CPL, also known as a Closing Services Letter or Insured Closing Letter, is a document provided by a title insurance underwriter to the lender or borrower. It offers protection against losses resulting from fraud, errors, or negligence committed by the closing agent or escrow company involved in the real estate transaction. The CPL serves as an assurance that the title insurance underwriter will indemnify the insured parties for any covered losses arising from the closing process.

Wiring Instructions:

Wiring Instructions are instructions provided by the title company or escrow agent to the buyer or their financial institution for the secure transfer of funds required for the real estate transaction. These instructions typically include the designated bank account, account number, and routing number to which the funds should be wired. It is crucial to follow the wiring instructions carefully to ensure the accurate and timely transfer of funds.

E&O (Errors and Omissions) Insurance:

E&O insurance is a type of professional liability insurance that protects professionals, such as title companies, against claims arising from errors, mistakes, or negligence in the performance of their services. Title companies often carry E&O insurance coverage to provide financial protection in the event of errors or omissions that may result in financial loss to their clients. This insurance coverage helps safeguard against potential liabilities and offers peace of mind to the parties involved in the real estate transaction.