By: Brad Finkelstein, www.brokeruniverse.com
Title insurance is one of the least understood parts of the mortgage transaction by the consumer, yet in at least 49 states (Iowa has a state-run title guarantee system) the product is needed to close a loan.

There are two parts to title insurance: a policy that protects the borrower and one that protects the lender.  In addition, in many states, the title agent is one who handles the closing.  Mortgage brokers and originators play a larger role in this process than even some in the industry believe, according to a pair of experts on the topic.

 At the Southeast Mortgage Brokers Conference sponsored by the Georgia Association of Mortgage Brokers held in Savannah, Ga., Howell Haunson, an attorney with Morris, Hardwick, Schneider, said that issues with the title are the leading cause of a delayed closing. These delays can be avoided by the mortgage broker being proactive at the point of origination.  The broker, he said, in a refinance situation has direct contact with the property owner.  In a sale situation, the broker can find out some of the information through comments by the borrower, provisions in the sales contract and/or by contacting the listing agent.  The areas where title problems creep up are bankruptcy, divorce, probate and second mortgages.

While much of what Mr. Haunson spoke about was specific for Georgia, it applies to most other states as well.

 Bankruptcy is an issue that most title searches will not find, he said.  The reason: title search work usually takes place in the state court clerk’s office in the county where the property is located.  Bankruptcy petitions are filed in a federal court.  The examiner will not look at federal court records unless they are notified.There are a number of issues in a bankruptcy that can impact the title, he said.  Even if the debt is discharged (and not all debts are dischargeable in a bankruptcy proceeding), the lien on the property from the debt may not have been cleared from the title.Mr. Haunson’s advice: Anytime a bankruptcy is involved, the settlement agent needs to be notified of that fact early in the process.

As for divorces, such might not be apparent right away to the title examiner because in Georgia they are filed in the county where the defendant lives, not where the property is.  Too often, he said, the settlement agent does not know the property could be part of the proceeding until the parties come to the closing table.

 If the divorce is not finalized, title companies might not insure the property.  If it is final, there are issues, such as the wording of judge’s order in the case, which could cloud the issue.Probate problems could arise even though probate court records are normally searched when the county of residences for the deceased is different than the county where the property is located.If the property owner died without a will, the administrator of the estate needs a court order to sell the property.  If there was a will, a court order still might be needed, Mr. Haunson explained, if the executor was not given the power to sell the property.  If there are co-executors, both might be required to execute documents to legally sell the property.

The emergence of mortgage fraud has created title delays on issues that were never before considered to be an issue.  Among Mr. Haunson’s red flags for the broker to look for are: If the title is being conveyed within a year of the seller obtaining title.  True owner-occupancy of the property.  Title was obtained through unrecorded deeds.  The use of powers-of-attorney forms for the seller.  The loan secured by property was recently satisfied.  Payment of debts not required by lender or required to clear title.Second mortgages can also be a problem.  The broker, by looking at the credit report, might find items that are second mortgages but when title was ordered only had informed the closing attorney of the first lien.