At closing, who pays for and receives clear title for the property being purchased?

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Your home is likely the largest purchase you’ll ever make. Spending hundreds of thousands of dollars on something, only to find that the seller didn’t have the right to sell it to you, sounds like a nightmare.

This nightmare, though unlikely, is something that happens. That’s why it’s important to make sure any home you buy has a clear title. Without clear title, you won’t be able to get a mortgage or home insurance. Even if you somehow complete the transaction, without clear title, you might lose your new home or at the very least find yourself awash in claims and courts.

What is a clear title?

A clear title, also known as a “clean title,” is a property title that is free from liens or additional issues that could jeopardize ownership, such as boundary disputes (encroachments) or easements. With a clear title, there’s no doubt who the owner of the property is, or who can claim legal ownership of the property.

To get a mortgage, lenders require a thorough search through local property records to ensure the title is clear.

How to check for a clear title on a property

As a homebuyer or seller, you can visit your local property records office or do an online search for the property’s title history. This will tell you what’s in the official records, but it won’t tell you what isn’t there — and there may be other records that’ll need to be checked, as well, such as building permits and zoning rules, which can limit property rights.

When getting a mortgage, your lender will work with a closing agent, such as an attorney, title company or escrow agency, to conduct a title search. Often, borrowers are asked to pay a fee for this search as part of the loan’s closing costs.

Issues with the title and how to resolve them

Given that property ownership is documented in local records offices, it might seem as though there should be few, if any, title defects. What can be wrong with a property title? First American Title Insurance Company, one of the largest in the U.S., has a list of some 70 possible defects, including:

• A forged deed
• An undisclosed divorce
• Undisclosed tax liens
• A disputed will
• Mechanic’s liens
• Zoning violations

While they’re not common, if the title search uncovers an issue (or if it doesn’t, but one comes up later), there can be considerable legal costs. This is where title insurance comes in.

Your lender will require the purchase of lender’s title insurance, which protects the lender and covers up to the value of the mortgage if a defect is found. You may also be required to purchase owner’s title insurance to protect yourself, which covers up to the home’s purchase price.

With an owner’s title insurance policy, the title insurance company will pay any outstanding loan balance as well as your equity up to the purchase price in the event of a successful claim of ownership by another party. You can also get an inflation rider so that if the value of the property increases, so does the amount of coverage (up to a certain point).

Keep in mind that the cost of title insurance can vary considerably. In some areas, title insurance costs are set by state regulators, while elsewhere it can pay to shop around. When comparing your options, always ask for the “reissue rate,” which is a discounted rate that may be available in situations when the property was recently sold or refinanced.

Remember, too, that while title insurance policies cover a lot of potential issues, they don’t cover all of them. If an issue does come up, it’s best to speak with an attorney who specializes in real estate matters to resolve any questions before you buy.

Frequently asked questions about clear title

What Are Closing Costs?

Closing costs are those fees related to the services necessary to complete a home loan transaction. These fees are in addition to the amount of money being borrowed for the mortgage and the down payment. Average closing costs typically include some or all of the following fees and expenses:

Appraisal Fee

The appraisal fee pays for a licensed professional to determine what the home is worth before a lender will extend a mortgage offer.

Credit Report Fee

The credit report fee is what the lender charges to check your credit score and obtain a credit report.

Loan Origination Fee

Lenders may charge a fee for initiating the loan.

Application Fee

Lenders may charge a fee to process the application.

Escrow Deposit

Lenders will usually create an escrow account where funds will be placed at closing for the borrower’s future property tax and homeowner’s insurance bills. 

Home Inspection Fee

This is the cost of the home inspection charged by a licensed inspector. It may include special inspections, such as for pests or termites, and may be paid ahead or at closing.

Survey Fee

Mortgage lenders often require a buyer to get a property survey to verify property lines before finalizing a loan.

Title Insurance

At closing there will be an owner’s policy of title insurance issued along with a lender’s policy. The owner’s policy insures that the new owner owns the property free and clear of other interests, liens and insures that title is marketable once they are ready to sell the property. The loan policy of title insurance insures the lender’s new mortgage as the first lien on the property and insures the mortgage until the time it is paid off.

Title Examination Fee

Title agencies will search the county records to verify there are not any issues with ownership or liens.

Property Taxes

Taxes are paid in arrears in Ohio and will be paid current as of the time of closing. There is then a proration credit from the seller to the buyer for the taxes that are not yet due and payable.

RecordingFee

The cost to record the transaction in the city or county’s records.

Conveyance Fee

The cost to transfer the property at the County Auditor and varies between $1 to $4 per thousand of purchase price.

Who pays closing costs on a home purchase is negotiable and varies amongst regions in Ohio. Fees associated with the loan are paid by the buyer everywhere. The title fees are split between the buyer and seller, but the split does vary between regions. The owner’s policy of title insurance is split between the buyer and seller in Northeast Ohio and paid in full by the seller in Central Ohio.

How Much Are Closing Costs?

Closing costs will vary, but they generally range from two and five percent of the total purchase price. Prior to closing, the party responsible for paying the closing costs will receive a Closing Disclosure that provides exact details of the loan and actual closing costs. It is important to carefully review this statement prior to signing to ensure that you understand all of the fees and stipulations and have the correct amount of money at the closing.

For more information about the home-buying process, includingTips to Ensure a Timely Closing and Preparing to Close on Your New Home, visit our blog.

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