As a practical matter, the real estate agent representing the buyer usually recommends a closing company and everyone goes along with that. The closing company must be approved by the buyer's lender, and the title insurance company must also be approved. Make sure these two choices are on the approved list before proceeding too far down the road. Under the federal Real Estate Settlement and Procedures Act (RESPA), it is illegal for a seller to require a particular closing company. The seller can merely recommend someone, and the buyer may or may not agree.
Even in a law firm, real estate closings are generally prepared by a team of secretaries, legal assistants, and paralegals. Almost every single scrap of paper is a form that comes off the computer. Do not be bashful about asking for copies of the forms ahead of time, with blank spaces instead of your particular information. That way you can read them and ask questions instead of feeling pressured to simply sign your name without reading anything. Loan documents usually arrive only a day or two before closing. Your lender will have a checklist of its requirements and some standard forms. Ask for copies.
If a real estate agent is involved, he or she will normally deliver a copy of the purchase contract to the closing company. If the parties do not have an agent, then the buyer normally delivers all documents to the closing company.
Title insurance is a policy that protects the lender, the buyer, or both if title defects arise after closing. The policy might pay off someone with a competing claim, or it might pay all legal expenses to contest someone else's claim.
Suppose you buy a rental house from Dan, who says he is the owner. You pay US Dollars 100,000, of which US Dollars 80,000 came from Last National Bank. There is a lender's title policy, but you never purchased an owner's title policy. One month later, George, Dan's brother and the real owner of the rental house, shows up after a tour of military duty overseas. He claims his brother impersonated him and forged his signature. George does not want to sell his house for any price. The title insurance company cannot pay off George, and it cannot fight him. Instead, it will pay policy limits - US Dollars 80,000 - on the title insurance. Last National Bank will receive US Dollars 80,000 under its lender's policy.
However, because you do not have an owner's title policy, you will receive nothing. You will not owe any money under the original loan - this is what the title insurance company took care of when it paid Last National Bank - but you also will not have your US Dollars 20,000 down payment anymore. You are out of luck! If you had an owner's title policy, you would be entitled to your US Dollars 20,000 back from the title company. That is why you always obtain an owner's policy.
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