The Necessity of Title Services
Title insurance and other services are an essential component of real estate transactions, guaranteeing security for both lenders and buyers.
This month we have the pleasure of speaking with Jessica Mathewson, president of Executive Title, who offers an in-depth look at the title services sector as it stands today. She shares her own experiences in the sector, the processes that are involved, and the greatest threats posed to the wider real estate industry in 2022.
What does a title company do?
A title company is a third party to almost all real estate transactions. When representing a buyer or lender, the title company protects both in two significant ways.
First, we verify that the seller has a legal right to sell the property. We do this by searching up to 40 years of historical records, depending on how old the property, and in so doing also determine the individuals that have owned the property. Next, we must determine that the property is free of defects and there is no one else who may have a claim or rights to the property. Once the searches come back, an examiner will type what is called a preliminary title commitment. This commitment lists everything that must be completed before the closing can occur and be insured. This document also lists any exceptions that we will be unable to insure over.
Secondly, In Minnesota, the buyer’s title company also has the role of the escrow company. Escrow is the process by which the interests of all parties in a real estate transaction are protected. The company ensures that all conditions of the sale have been met before the property deed and money change hands. We ensure that the conditions on our preliminary title commitment are completed before closing so that we can issue the title insurance policies. As the escrow company, we receive down payment funds from the buyer and the loan funds from the lender, and we comply with the lender’s instructions for closing. We also prepare the documents for the transaction, such as the closing statement with prorated property taxes, interest and insurance, and the deed or other seller-signed documents required to transfer the property.
At the closing, we deliver these items to the appropriate parties, disburse the funds, and record the documents with the county, putting the new buyer into title.
Who needs title insurance?
Title companies do everything possible to get the most accurate information in our searches, but unfortunately, the information we receive is not always 100% guaranteed. Humans make mistakes, and past records may be inaccurate or recorded incorrectly. There may be unknown errors, fraud, or forgery. These risks are why title insurance exists. Title insurance guarantees the lender and buyer the right to the property unencumbered. Should an issue arise after closing, the title company and insurer have the duty and costs associated with defending those rights.
If a buyer is obtaining a mortgage to purchase their property, all lenders will require a lender’s title insurance policy for the amount of the loan. The lender’s policy is issued to the mortgage lender. The policy protects only the lender from covered losses arising from any defects that become known after the closing. This policy remains in effect until the lender is paid in full, the property is refinanced (in which that new lender would require a new policy), or the property is sold.
An owner’s policy is issued to a home buyer. Just like the lender’s policy protects a lender, an owner’s policy protects a buyer from losses that could occur after the closing. Should a buyer not have purchased an owner’s policy, they would have to hire an attorney at their own expense to defend them or solve the issue.
Title companies do everything possible to get the most accurate information in our searches
What is the process involved in acquiring title services?
I will try to make this short and outline a cookie-cutter scenario. Of course, not all transactions necessarily go this way. The average timeline of a transaction is approximately 30 days. As the title company, we usually receive an order request early in that timeline from a lender, a real estate professional, or an attorney.
Once we receive a lender order and purchase agreement, we create a new file. Usually, within the first week, we contact the parties, gather the information we need, order abstracting and searches and wait for a commitment to be produced by one of our examiners. Once completed, we send the commitment to insure to all parties, and a closing day and time will be scheduled for everyone involved. Once everything is closed and funded, and after receiving the recorded documents back from the county, we issue the final insurance policies.
By whom are these services intended to be used?
Typically, our clients are lenders, real estate agents, attorneys, banks, investors, and home builders. Because we have relationships with these professionals, they are usually our first contact. We offer many services for different clients and needs. A couple of examples could include:
A real estate agent is getting ready to list a property but feels the homeowner is not telling them the entire truth about the transaction. Something just isn’t adding up, and they do not want to list the property under this suspicion. An agent may come to us and ask us to do a preliminary search on the property. In the investigation, we discover that the seller has judgements on and an outstanding mechanic’s lien on the property. This information would be helpful for the agent before listing the property, as it would affect the sale.
When someone is refinancing a property, the lender will use our services. We provide them a title commitment, complete the closing, and issue them a lender’s policy, ensuring that the lender is in first lien position.
Who chooses the title company?
Most consumers are not familiar with what a title company does, what title insurance is, or how important of a role we play. Although it is up to a homebuyer to choose a title company, homebuyers usually leave it up to their lender or real estate professional to determine as, most of the time, these professionals already have relationships with title companies they work with and trust. Because of this, typically, our clients come from lenders, real estate agents, and attorneys. In turn, their clients become our customers.
What are some types of title defects?
Each property and transaction are very different, and many issues could arise. These issues can make a real estate transaction an unpleasant experience for a buyer or seller and are often elements they were unaware of or would not have thought of. However, even in the most extreme of cases, our job is to help resolve the issues and get the title to the property insurable. One common resolution tactic is called a quiet title action. This special legal proceeding is common with lender disputes, the death of an owner, cases of adverse possession, or other issues that must be resolved under a court order. Some common types of title deficits are:
- A past mortgage had been paid in full, but unfortunately, the lender did not record the satisfaction with the county. The seller did not save any paperwork proving that they paid it off, and their mortgage company or title company went out of business.
- A seller inherited a property from someone, and the paperwork was filed incorrectly for a legal transfer. They go to sell the property and find out about the issues that need to be resolved before they can sell.
- Although it is common for properties to have certain easements like utilities, sewer, or water, the city may have an easement that goes through the property lines that could hinder a new buyer from adding on to the property.
- There may be mechanic’s liens from previous work done on the property that had not been paid for. If not taken care of before the sale of the property, this lien would pass to the new buyer.
- The property might have been part of a bankruptcy, and there are special sales requirements.
- One that happens quite often: the seller was previously married but is now divorced. There is an outstanding marital lien on the property outlined in their divorce decree in which the other spouse is to receive a portion of the proceeds of the sale. If this is not taken care of before or at closing, that spouse still has an interest in the property and would have a claim against the property.
- Any past owners’ outstanding judgments or tax liens may have a right to an interest in the property.
- A foreclosure, redemption, or short sale may have been processed incorrectly or with errors.
- Sticky situations may also come up when there are deceased people that have an interest in the property. They may have passed away without a will or probate done, or there may be missing heirs that were unaccounted for.
All of these scenarios would be a defect on title that will pass on to the new owner if not cleared up prior to closing.
Typically, our clients are lenders, real estate agents, attorneys, banks, investors, and home builders.
Why is it advisable for a property buyer to consult a title expert prior to completing their purchase?
Ideally, a buyer would not try to purchase a property alone without involving a professional. But, again, if a new mortgage is applied for, it would not be an option to not have representation since the lender would require it. As long as a professional was involved, so would a title company, as we are a part of almost all real estate-related transactions. A buyer that does not consult with us or does not perform due diligence before purchasing a home could run into one of the many serious issues I described earlier.
What is the most notable growing threat in the title services industry?
In the past few years, real estate cyber scams have become more and more prominent. In 2021, real estate cybercrime losses reached $350 million. That amounts to one attempted scam every 37 seconds. Wire fraud is the largest threat to real estate transactions.
Cyber perpetrators use social engineering to impersonate a title company, real estate agent or lender. They often send fake emails to the buyer with fraudulent wiring instructions, conning them into wiring their closing funds to bank accounts under the fraudster’s control. It has become almost effortless for a fraudster to get information. They can go right online to MLS property listings or Zillow and see active real estate transactions. They can look up who the seller is, and the agent’s contact info is in the listing. Then they will send phishing emails to the parties, pretending to be others to gain information.
If any of the parties involved do not use secure email (and most customers do not), the fraudster will hack their email account and harvest the details of their upcoming closing. They can even find out how much money the buyers will need at closing. They use the email signatures of the professionals involved to make it appear that the scam email is legit. In many cases, they will tell the buyer a story that they changed banks or account numbers and now need them to wire the funds to the new bank information.
Fraudsters sit back and wait for the right timing. They are waiting to see if someone has a family emergency, a panicked situation, or an upcoming vacation. They will use the information to plan the perfect attack. Unfortunately, many fall for this and wire their funds to the fraudster. No one plans on getting scammed. Money that is sent by a wire transfer is extremely difficult to recover.
Why did you choose to specialise in title services?
I am not sure I was the one that made the choice; I believe it chose me. First, let me give you a little background. I joined Executive Title in 2009, partnering with Eric Whites, the original owner, who had started the company in 2002. We were still dealing with the fallout of the market crash of 2008. The housing market and industry altogether looked very different from what we had ever dealt with in the past. I came to Executive Title with a lending background. As a lender, I worked with title companies but did not fully understand the ins and outs that happened behind the scenes. What I did have was a drive and passion for learning and for success. Eric had lengthy title knowledge, and I knew he would teach me the areas I was unfamiliar with.
For those next five years, my focus with the company was its foundation, encompassing its overall growth and efficiencies. To me, the goal was simple. I would find and employ the best of the best, and that is what I did. You could probably say that I specialised in people more than title services. We have some of the most amazing humans I know. Some of our staff have been here from the beginning, and most have been here for more than 10 years. We have mothers and sons, sisters, brothers, and more. We have numerous multi-generations of our own and employees’ family members working here. Some have been in the business since they were young, with their careers expanding for over 40 years. With over hundreds of years of combined experience, everyone specialises in different areas, and together we specialise in everything relating to ‘title’.
With that said, in 2014, Eric had decided that he wanted to focus his time on his other endeavour as a real instate investor and developer, so I ended up buying his 50% stake in the company. Fast forward a year later, the saying ‘you are meant to be together’ holds a special meaning for the two of us. While very unexpected, we ended up in a relationship and have been married since 2018. Together again, we run and operate Executive Title as a team.
How have you witnessed the sector change since joining Executive Title?
One of the largest changes is now being able to submit documents to the county recording offices electronically, where we used to have staff drive around or use different courier methods to manually record the documents.
Another significant change for our industry is being at a point where technology and newly passed laws meet. It is now becoming possible to get documents signed, notarised, and recorded electronically. We had already been working with various vendors and customers on the implementation of RON (remote online notary) closings. This new platform is where the closings happen online, instead of in person. Being ahead of the game on this helped us immensely during the pandemic, as we were able to help hundreds of people close on properties without them having to leave the comfort of their homes. Our industry overall is known to be very slow to change, and only a handful of lenders currently allow these RON closings to occur. Still, we believe this will become a normal course of business in the near future.
Jessica Mathewson, President
11112 86th Ave N, Maple Grove, MN 55369, United States
Tel: +1 763-424-1850
Jessica Mathewson became President of Executive Title in 2015. With more than 18 years of experience in lending and title insurance, she has a deep understanding of the intricacies that arise in real estate transactions. In addition, she enjoys specialising in providing strategies to resolve complex cases. Jessica is a member of the American Land Title Association and the Minnesota Land Title Association.
Executive Title is an established full-service independent title insurance agency that has been built on reputation, knowledge and experience for over 20 years. Family-owned and operated, the firm is crewed by a dedicated multi-generational team that values family, traditions and hard work. The agency has six offices around the Twin Cities Metro. Although the majority of transactions it acts upon are in Minnesota, Executive Title is also licensed in Wisconsin and Colorado. The firm is underwritten by Stewart Title Guarantee and Fidelity National Insurance.