Unit 7 Title Records
Lender's policy:
(mortgage policy) is issued for the benefit of the mortgage lender and the amount of the mortgage loan will determine the amount of the coverage.
Action to quiet title:
A court action that establishes ownership when ownership cannot be traced through an unbroken chain of title. Legal action may be required if a grantor acquired title under one name and conveyed it under another name.
Proof of ownership is marketable
A deed by itself is not considered sufficient evidence of ownership The grantee needs assurance that ownership is actually being acquired and that the title is marketable. A certificate of title, title insurance, a Torrens certificate is commonly used to prove ownership.
The Torrens system
A legal registration system used to verify ownership of real estate. Provides evidence of title without the need for an additional search of the public records. An owner of real property submits a written application to register a title. If the applicant proves ownership, the court enters an order to register the real estate The original Torrens certificate of title in the registrar's of titles is directed to issue a certificate of title.
Notice sent to interested parties
A lis pendens is filed Recorded notice of a pending lawsuit affecting title to property All parties with a claim must present evidence of the claim in court
Certificate of title
A statement of opinion on the status of the title to a parcel of real property based on an examination of specified public records. A statement of opinion of the titles's status on the date the certificate is issued. Is not a guarantee of ownership. May be prepared by a title company, licensed abstractor, or attorney. An owner, mortgage lender, or buyer may request the certificate.
Coverage
A title company will not insure a bad title or defects that clearly appear in a title search.
Title search and abstract of title
A title examiner reviews public records pertaining to a property *Identifies ownership, wills, judicial proceedings, and other encumbrances that may affect title The search is from the present to the original source of title *The original source may be a land grant or a U.S. patent *Many states have adopted the marketable title act Allows title searches to only go back for a certain period of years (e.g., 30 or 60) The process is used to establish the chain of title. The chain of title id a history of successive recorded ownership documents linked together The examiner seeks an unbroken chain Anything that may cast doubt on marketable title is a cloud on title Examples: a gap in the chain of title, unreleased lien, undisclosed encumbrances, court orders The seller will need to clear the title to convey marketable title. Small issues such as an unrecorded name change may be corrected with a correction or quitclaim deed. Larger issues may require a lawsuit to quiet title
American land title association (ALTA):
A title insurance policy that protects the interest in a collateral property of a mortgage lender who originates a new real estate loan.
Not covered by either policy
All exceptions listed in the commitment or policy including liens Defects and liens listed in policy Defects known to buyer and seller Changes in land use brought about by zoning ordinances. *Zoning use or changes
Attorney's opinion of title
An abstract of title that an attorney has examined and has certified to be, in the attorney's opinion, an accurate statement of the facts concerning the property's ownership. *Based on a review of the abstract is sufficient evidence of title. *Does not protect against defects that cannot be discovered from the public record.
Title insurance
Best method for insuring marketable title Title search performed by examiner Title insurance company issues a title report and commitment The title report *Shows only the current status of ownership and recorded encumbrances, but *Does not show the history of past owners or encumbrances The commitment lists policy exceptions and recorded defects and encumbrances *Exceptions are not covered by the policy **Standard exceptions: items never covered; buyer responsible for checking Possession, encroachments, unrecorded mechanic's liens, zoning compliance **Special exceptions: clouds specific to the property discovered by examiner Example: Easements, restrictive covenants, current mortgages The buyer may offer objections before closing. Title insurance A policy insuring a property owner or mortgagee against loss by reason of defects in the title to a parcel of real estate, other than encumbrances, defects, and matters specifically excluded by the policy. **A contract under which the policyholder is protected from losses arising from defects in the title. A title insurance company determines if the title is insurable, based on a review of public records. *If yes, a policy is issued *Unlike other insurance policies that insure against future losses, title insurance protects the insured from an event that occured before the policy was issued. *Considered the best defense of title ***The insurance company will defend any lawsuit based on an insurable defect and pay claims if the title proves to be defective. Preliminary report *The name of the insured party *The legal description of the real estate *The estate or interest covered *Conditions and stipulations under which the policy is issued *A schedule of all exceptions, including encumbrances and defects found in the public records and any known unrecorded defects. Premium for the policy is paid once, at the closing of the transactions. The maximum loss for which the company may be liable cannot exceed the face amount of the policy (unless the amount of coverage has been extended by use of an inflation rider. When a title company makes a payment to settle a claim covered by a policy, the company acquires the right to any remedy or damages available to the insured, this is a right called subrogation.
Unrecorded documents
Certain types of liens are not recorded *Real estate taxes and special assessments Inheritance taxes and franchise taxes *Are statutory liens and are placed against all real estate owned by a decedent at the time of death or by a corporation at the time the franchise taxes become a lien. You can get these from the recorder's office Off the record liens
2 basic forms of notice that can be given
Constructive notice Notice given to the world by recorded documents. All persons charged with knowledge of such documents and their contents, whether or not they have actually examined them. Possession of property is also considered constructive notice that the person in possession has an interest in the property. **Legal presumption that information has been obtained by an individual through due diligence. **A prospective purchaser or lender is responsible for discovering the interest and is presumed to have done so. Actual notice: Express information of fact; that which is known; direct knowledge. Means not only that information of an interest in property is available but also that someone is actually aware of it. If it can be proved that an individual has had actual notice of a property right, that person cannot use a lack of constructive notice (unrecorded deed) to justify a claim.
Requirements for recording- determined by law
Deeds, mortgages and deeds of trust, contracts for deed, easements, and long term leases are among the types of documents that are usually recorded. Recorded documents should be executed (signed) *Most states require documents to be acknowledged (notarized) to be recorded *A deed is not recorded lacks constructive or legal notice of ownership *Creates a cloud on title Recording fee and transfer taxes are determined by state law *Deed tax, documentary fees, tax stamp, mortgage registry tax, and who pays *Typically paid when the deed is recorded
Marketable title
Good or clear title, reasonably free from the risk of litigation over possible defects. Good or clear title, reasonably free from the risk of litigation over possible defects The buyer's goal is to obtain marketable title
System allows users to search claims and actual notice, such as parties in possession or encroachments
Inspect property for visible claims and actual notice, such as parties in possession or encroachments. Inspect public records for constructive/ legal, such as liens and persons on the title. Part of buyers' due diligence is to inspect (or have someone inspect) both the property (e.g., home inspection)
PUBLIC RECORDING SYSTEM
Key points Policies and procedures that regulate recording are established by state laws. *These laws also determine who is responsible for organizing and maintaining recorded documents Recording does not prove validity of the document. Establish Ownership, giving notice of encumbrances, and establishing priority of liens Notice System allows documents to be posted for public (legal) notice *Provides constructive or legal notice *Establishes priority of interests- 1st in time, 1st in right **Priority of documents is based on the date and time of recording A deed does not have to be recorded to be valid *A grantor who does not record a deed risks having another party claim title to the property. Giving notice- assurance that the existence of the interest is made available to the public.
Recording
Note the date and time the document is filed Assign a unique recording number Copy the document into public record (digital image) List the document in grantor and grantee indexes Return the original document to the indicated party Recording: The act of entering or recording documents affecting or conveying interests in real estate in the recorder's office established in each county. Until it is recorded, a deed or a mortgage ordinarily is not effective against subsequent purchasers or mortgagees. **The act of placing documents in the public record. **All recording acts essentially provide that any written document that affects any estate, right, title, or interest in land must be recorded in the county or, in some states, the town) where the land is located to serve as public notice. **Give legal priority to those interests recorded first- the first in time, first in right, first come, first served principle. Exemption: Liens for property taxes, special assessments, and delinquent amounts owed to the IRS Eligibility for recording A document must be drawn and executed according to state law
Standard coverage policy
Protects the buyers and their heirs *Cost of coverage is based on the sale price of the property *Paid by the seller or the buyer as per the purchase contract *Coverage continues until the property changes ownership Protects the new buyer/ owner against problems discovered after closing. Excludes exceptions/ problems listed as exceptions, including the following: *Errors in the title examination *Errors in the abstract *Errors in the public record, such as misfiled documents *Hidden defects, such as forgery, incompetency, misrepresented marital status, and improperly prepared deeds.
Lender policy
Protects the mortgagee/ lender Coverage based on the loan amount Often paid for by the buyer, but the seller could also pay Coverage diminishes with each loan payment and ceases to exist when loan is satisfied Insures the title as it is known from the public records. Insures against such hidden defects as forged documents, conveyances by incompetent grantors, incorrect marital statements, and improperly delivered deeds.
Extended coverage
Standard coverage plus defects discoverable through the following *Property inspection, including unrecorded rights of persons in possession *Examination of survey Unrecorded liens not known by policy holder. *Protects homeowner against defects that may be discovered by inspection ***Rights of parties in possession, examination of a survey, and certain unrecorded liens. *Most real estate sales contracts will include a requirement that an ALTA policy be provided. Adds protection against problems that are not a matter of public record but would probably be discovered through inspection (actual notice) of the property, such as the following *Parties in possession or adverse possession issues *Matters of survey, such as encroachments *Gap period- from title commitment through recording the deed.
PUBLIC RECORDS
State laws determine how documents are filed for recording. The recording system provides a way of determining who owns a particular piece of real property and the title history of the property. Recording a document provides all interested parties with constructive or legal notice of its contents, by operation of law. Documents pertaining to a particular parcel are recorded chronologically. Recorded documents are also indexed alphabetically according to the names of the grantor and grantee. In many states, the recording system is known as a race notice system- the first deed to be recorded prevails if that person has received no notice of prior conveyances.
Title search
The examination of public records relating to real estate to determine the current state of the ownership. Determines whether any defects exist in the chain of title. 1st records of the conveyances of ownership are examined - starting with the present owner Then traced backward to its origin 40-60 years The time beyond which the title must be searched can be limited in states that have adopted the Marketable Title Act created by the Uniform Law Commission This law extinguishes certain interests and cures certain defects arising before the root of the title is found. An abstract of title is a historical summary of all recorded documents affecting title to a given parcel of land, created through a title search. The seller is expected to furnish an updated abstract and traces the chain of title to determine marketability After tracing the chain of title, the attorney renders a title opinion. *Shows current status of rights *List objections *Often called a certificate or title Abstract of title The condensed history of the recorded ownership of a particular parcel of real estate, consisting of a summary of the original grant and all subsequent conveyances and encumbrances affecting the property and a certification by the abstractor that the history is complete and accurate. Is a summary report of what the title search found in the public records.
Priority
The order of possession or time. The priority of liens is generally determined by the chronological order in which the lien documents are recorded; tax liens, however, have priority even over previously recorded liens. **Refers to the order in which documents or liens were recorded. Situations that can affect the priority of rights in a parcel of real estate *Who recorded the interest first *Who was in possession first *Who had actual or constructive notice
Court hears and judges claims
The process recognizes valid claims and quiets invalid claims Once the court order is recorded, the cloud on the title is cleared.
Chain of title
The succession of conveyances, from some accepted starting point, whereby the present holder of real property derives title. *Is the record of a property's ownership. *The grantee of the 1st deed to the property will become the grantor of the next transfer of title, each owner is linked to the next so that a chain is formed. Chain of title does not include *Liens and encumbrances or any other documents not directly related to ownership. Cloud on the title *If ownership cannot be traced through an unbroken chain, gap in the chain of title. Suit to quiet title *Court hearing to determine ownership, recognize valid claims, and invalid claims *Used to clear clouded title *Establishes ownership under adverse possession
Policy premium
Title insurance premium is paid once at closing
Brokers and sales people must know the requirements to make documents valid, including
What makes title marketable How ownership issues may impact the transfer of title The essential elements of contracts and deeds Who is required to sign each document in the transaction Seller is required to deliver to the buyer marketable title. Title that is acceptable to a reasonably prudent person and which will not subject buyer to litigation. ***Disclose no serious defects and not depend on doubtful questions of law or fact to prove its validity ***Not expose a purchaser to the hazard of litigation or threaten the quiet enjoyment of the property ***Convince a reasonably well informed and prudent purchaser, acting on business principles and with knowledge of the facts and their legal significance, that the purchaser could sell or mortgage the property at a later time. Questions of marketable title must be raised by a buyer before acceptance of the deed. *Once a buyer has accepted a deed with unmarketable title, the only available legal recourse may be to sue the seller under any covenants of warranty contained in the deed. Preliminary title benefits the seller by giving the seller an early opportunity to cure defects.
Owner's policy
is issued for the benefit of the owner (new buyer) and the owner's heir s or devisees and is issued for the property's purchase price.
