Curative Work for Title Insurance

Title Commitment Basics

Title insurance protects lenders and homebuyers from hidden risks to a property’s title. In financed purchases, the lender will always require a loan policy; however, title insurance is always recommended for homebuyers as well.

To issue title insurance, the title company must first perform a thorough title search and exam. Through this process, skilled title examiners will review mortgages, deeds, liens, encroachments, and other potential threats to the title. The title search will also identify any breaks in the chain of title. Once the title search and exam process is complete, the title company will prepare a title commitment.

The title commitment is essentially a promise from the title company to provide title insurance for a property after closing. It includes:

• The legal description of the property
• The current ownership status
• A list of requirements that must be met before title insurance can be issued
• Any exceptions to the title insurance policy

The title commitment is sent to everyone involved with the transaction, including the realtors, lenders, buyers, and sellers. If the closing is being handled by a firm outside the title company, they will also receive a copy. The title commitment isn’t just a formality: it’s an important document that should be reviewed immediately.

Jennifer Melton, Title manager at South Oak Title and Closing in Birmingham, says, “It’s so important for realtors to read the entire title commitment as soon as they receive it. Review the document to verify that it’s accurate and identify any questions you have. And pay special attention to the requirements."

Schedule B-1: The Requirements

The requirements can be found in Schedule B-1 of any title commitment. Curative work is the work that is done to clear these requirements to present a clear title at closing. Melton says, "Some of this work is straightforward and routine. Other curative work may be more complicated and time-consuming. Every property is unique."

Several different types of requirements may appear on the title commitment. These requirements can include letters, mortgages, judgments, liens, and other breaks in the chain of title.

Letters

“Several letters will be required for every file we close,” Melton explains. These letters typically verify information, confirm compliance with certain regulations, or clear potential claims or encumbrances on the property. “We require municipal assessment letters, tax status letters, sewer letters, HOA letters, and in some cases, fire due or even library letters.”

Each letter clarifies the status of various aspects of the property and serves to ensure that the title is clear for transfer.

Mortgages

Any existing mortgages on the property must be paid off before the property can be sold or refinanced. This requirement is usually addressed by paying it off at or before closing. The lender will then issue a release of the mortgage, which will be recorded in the county records to clear the title.

While the mortgages listed usually belong to the current owner, the title search will occasionally reveal a mortgage from a prior owner that needs to be cleared. This can happen due to oversight, incomplete documentation, or clerical errors associated with a prior transaction.

Liens

Mortgages are the most common type of lien associated with a property. However, other types of liens may be listed on a title commitment. Some common liens that may appear on a title commitment include:

• Mechanic’s liens: Placed by contractors or suppliers for unpaid work or materials
  
• Tax liens: Imposed by local, state, or federal government for unpaid taxes
• HOA liens: Placed by homeowners’ associations for unpaid association dues or penalties

Judgments

A judgment is a court ruling against an individual that may arise from various disputes, such as unpaid debts, breach of contract cases, or other legal proceedings. When a judgment is issued, it can result in a lien being placed on the property or the debtor.

Breaks in the Chain of Title

A break in the chain of title is a gap or discrepancy in the historical ownership records of a property. Some common breaks in the chain of title may include missing or improperly executed documents, unresolved estates, foreclosure issues, fraudulent conveyances, and errors in the public record.

Any unresolved requirements or issues in the chain of title can lead to legal disputes, financial loss, or an inability to sell the property in the future.

Curative Work for Title Insurance

Once the title commitment is issued, the curative work can begin. The closer will handle the more straightforward items. In many cases, this process begins with verifying names.

Melton says, “Because our title search process includes a name search without social security numbers, you’ll occasionally find judgments or liens listed that don’t apply to the person in our transaction. For example, if we’re running a Jane A. Smith in Jefferson County, we will probably have several items that appear in her name. But the closer is going to clear any judgments that don’t belong by cross-checking social security numbers.” Any judgments or liens that do not apply will be removed.

The closer will also obtain releases for any mortgages or liens. “For each of these releases, there will be a payoff amount that will be due at closing,” Melton explains.

Other curative work may require more complex solutions. Although every property is unique, common solutions include:

• Releases and satisfactions: Legal documentation that formally acknowledges that a debt or obligation secured by a lien on a property has been fully paid or otherwise satisfied.
• Affidavits: Documents that can be used to clarify, verify, or correct information about past transactions, particularly when documents are missing or parties are unavailable. Common affidavits include heirship affidavits, boundary affidavits, and affidavits of non-foreclosure.
• Correction deeds: Legal documents that are used to rectify errors, such as misspelled names, incorrect property descriptions, or erroneous recording information, in previously recorded deeds.
• Agreements: Legally binding documents negotiated between parties to resolve specific title issues, such as boundary agreements, easement agreements, or indemnity agreements.
• Legal actions and judgments: Used only when simpler methods are insufficient and may include quiet title actions or declaratory judgments.

Melton says, “Most curative work is straightforward and relatively easy. But in some cases, there are more complex situations that will require time, cooperation, and collaboration.”

What Realtors Need to Understand about Curative Work

Although most curative work goes on behind the scenes, realtors need to understand what’s required to get a property to the closing table with a clear title. Melton says, “Most clients have very little knowledge of title insurance or what it means to have a clear title. Realtors have the opportunity to educate their clients on the importance of the title company’s due diligence, especially in the unlikely event of a closing delay.”

Realtors can also facilitate smoother transactions by anticipating potential hurdles and addressing them proactively. Identifying potential red flags or ordering a preliminary title report can help the title company clear title issues early.

Throughout the entire title and closing process, the entire South Oak team is working diligently to prepare the closing package and promptly cure issues. But response time can also make a big difference for more complicated transactions. “Every realtor should read every title commitment right away. If you see issues or a matter that needs a response, do so quickly to minimize frustration and potential delays,” Melton explains.

A deep understanding of title insurance and the title and closing process is key to helping you better serve your clients. That’s why South Oak is committed to partnering with realtors and providing opportunities for continuing education. If you’d like to learn more about our educational opportunities, contact us today.