Title, Searches and the Closing Table

WWhat title means

Title is not a piece of paper. It is the legal ownership of an interest in land, evidenced by a chain of recorded documents running backwards through every previous transfer. A deed is the instrument that moves title from one party to another; the public record is where that movement is registered so that the world can rely on it.

Because the record is public and cumulative, the past does not disappear. An obligation created decades ago and never released is still attached to the land, and will still be attached after the sale unless it is dealt with.

TThe search

A title search reads the chain backwards for a statutory period, looking for anything that limits the interest being sold. The recurring findings are mortgages that were paid but never formally released, judgments and tax liens against a previous owner, easements granting someone a right to cross or run services through the land, restrictive covenants imposed when the subdivision was created, and breaks in the chain where a transfer was recorded incorrectly.

Most findings are cleared as a matter of routine before closing. The point of doing the search early is that clearing takes time, and a discovery made in the final week delays a transaction that everyone has already planned around.

EEncumbrances worth understanding

An easement is a right held by someone else over the land: a utility corridor, a shared driveway, a right of access to a neighbouring parcel. It survives the sale, and it constrains what can be built.

A lien is a claim securing a debt. A mortgage is the voluntary kind. Tax liens, judgment liens and contractors' liens are the involuntary kinds, and they generally must be paid from the proceeds at closing.

A restrictive covenant is a private rule recorded against the land when it was subdivided. Some are still enforced and govern such things as setbacks and outbuildings. Older records in many American cities also contain racial covenants, which were written into deeds in the first half of the twentieth century, are unenforceable and void, and remain in the documentary record as evidence of how neighbourhoods were deliberately shaped.

TTitle insurance

Title insurance protects against defects that the search did not reveal: forgery in the chain, an heir nobody knew of, a mis-indexed document. It is unusual among insurance products in that it looks backwards rather than forwards and is paid for once.

There are ordinarily two policies. One protects the lender's interest and is normally required as a condition of the loan; one protects the buyer's own equity and is separate. They are not the same policy and do not cover the same party.

TThe order of events at closing

Closing follows a fixed logic. The settlement statement sets out every debit and credit on both sides. The buyer's funds and the lender's funds arrive. Documents are signed: the note and mortgage by the buyer, the deed by the seller. Existing loans and liens are paid off from the proceeds. The deed and the new mortgage are recorded. Only after recording is the transfer complete against the world.

Sums are apportioned to the day. Property taxes, any prepaid utilities and, where relevant, association dues are divided between the parties according to the date of transfer, which is why the final figure differs from the round numbers discussed earlier in the process.