Real Estate Title

Real Estate Title

Real Estate Finance BUSN220

Introduction

Real estate title is a legal way of saying that someone has exclusive rights to a specific property. It refers to ownership of property, it shows that someone has the right to use or dispose that property (American Real Estate Society, 2000). This paper will explain the importance of qualifying a real estate title as part of the loan closing process. Second, the paper will define what title insurance is and its role in real estate finance. Also, the essay will define what a Torrens system is and describe an example of real-world title problem that has impacted real estate finance.

Importance of Qualifying a Title as part of the Loan Closing Process

Loan process starts when a potential borrower approaches a financial institution or any lender with an objective of securing certain amount of money. To determine the right of a mortgage given on a piece of property, the mortgage lender seeks to qualify the real estate title by verifying and examining public records and finding out the history of the property. Largely qualifying a loan involves securing and assessing assurances regarding the accuracy of the real estate title which is being accepted as collateral by the financing institution or the mortgage lender. The parties involved in qualifying a title are the mortgage lender, abstractors, the borrower and attorneys. Loan closing process is the last step in securing a loan. It usually referred to as settlement period. At this time the parties involved usually sign the necessary documents. The closing loan process is usually held the lender’s office, attorney’s office or at the borrower’s office (Coffelt, 2008). The major advantage of qualifying real estate title during the loan closing process is that the lender is able to have clear information on the property being accepted as collateral. Also in cases of default of the loan the lender is able to clear information on the legal steps to be taken. Lastly, the buyers and lenders are sure that they are getting a real and valid real estate title that is marketable and insurable. Most of the mortgage lenders are very much concerned insurability that the major reason they include qualifying a real estate title during the loan closing process (Mitchell, 2010).

Title Insurance and its Role in Real Estate Finance

Title insurance usually covers the loss of an interest in a property due to legal defects. It is a product that has been developed in the United States and is due to alleged legal defects and comparative deficiency on property records. In the United States, title insurance is hybrid of a program that guarantees the quality of a real estate title up to the date that is indicated in the policy and abstraction approach. Policies are issued to the either the mortgage lenders or the buyers of the real estate. American Land Title association; which is a title insurance company in the US, protects lenders and buyers in a variety of events like forgery, unrecorded easements, errors and omissions in a title deed, mistakes done in examining records, liens and undisclosed heirs. Ability to secure title insurance by the borrower is very essential to the mortgage lender, because if the real estate title has defects there are high chances that the money borrower will defect from paying the loan or become less obliged to their loans (Massachusetts title insurance company, 2001).

Torrens System

Torrens system was invented by Sir Robert Torrens in 1858 and has been adopted by Canada and the states in the United States. It is a land registration system in which the US government is the custodian of all real estate records. Torrens system is used to search title in the Unites States beside the meticulous abstraction method. Landowner or a property owner can receive a Torrens Certificate by using Torrens system which includes the state as the guarantor of the real estate title in the event of a claim. The major purpose of a Torrens system is to provide certainty of a real estate title to a property or a land. Once one’s name is registered on the Torrens Title register, they become the sole owner of the property. Torrens system eliminates grounds of disputes, reduces costs of land sale, transfer and avoids the consequences of lost certificates (Viele, 2001).

Real Estate Problem that has impacted Real Estate Finance

Anya Litvak is business reporter in Pittsburg Post-Gazette. She wrote the article; noble finds 610 million US dollars worth of title defects in consol’s Marcellus acreage. Anya in her article has stated that Noble Energy thought that they are defects in the titles to about ninety three thousand gross acres. The value of this acreage is stated to be about 610 million US dollars. Noble Energy Company and Consol Energy Company entered into a joint shale extraction where defects were found in the land that was purchased. Noble Energy Company found land defects while conducting due diligence exercise on the titles which was one of the agreements with Consol Energy Company. The two energy companies had a deal which stated that if Noble Company finds land defects and Consol Company is unable to remedy the defects the value of the acres was to be deducted from the drilling carry that Noble Company had agreed to pay Consol to jointly develop their Marcellus interest (Anya Litvak, 2013). From Litvak article it can be viewed that land title defects can host huge sum of money. It is very essential for a mortgage lender and real estate purchases to conduct title examination alongside with title insurance before embarking into any deal.

Conclusion

Qualifying title insurance is very important in closing a real estate loan as shown in the first part of the paper. Mortgage lenders require title insurance to avoid loan default and protect the buyers in the event of title defects. Anya article shows that title defects are very common in real estate can cause millions dollars as a result of land defects.

References

American Real Estate Society. (2000). The journal of real estate research. Sacramento, Calif: American Real Estate Society.

Coffelt, D. E., & National Business Institute. (2008). Resolving real estate title defects. Eau Claire, WI: NBI, Inc.

Mitchell, K. M., Wittenborg, P., Bagdasarian, B. H., & Massachusetts Continuing Legal Education, Inc. (2010). Real estate title practice in Massachusetts. Boston, MA: Massachusetts Continuing Legal Education.

Massachusetts title insurance company (2001). Real estate title insurance. Boston.

Viele, D., & Real Estate Board of New York. (2000). The New York Torrens system and how to use it. New York: The Board.

Anya Litvak (2013) “Noble finds $610M worth of title defects in Consol’s Marcellus acreage”. Pittsburgh Business Times Retrieved from http://www.bizjournals.com/pittsburgh/blog/energy/2013/05/noble-finds-610m-worth-of-title.html