Buying and selling your home is, for most of us, the largest and most complicated transaction of our lives. In Texas, parties to a real estate transaction are not required to use a lawyer, although in some other states, lawyers are required to oversee the transaction.
The biggest misconception that most people have is that they don’t realize that the process of buying a home is usually a two-part transaction. First, the parties must agree to transfer the particular piece of real estate through a written sales agreement negotiated by the current owner and perspective buyer. This transfer is what is referred to as “passing title” to the real estate. Every state, including Texas, requires that all real property be transferred in writing from seller to buyer in the form of a deed.
Secondly, if the buyer is not paying cash for the property, they will need to enter into a contract finance the purchase. The person or entity, most often a mortgage company or a bank, that is lending the buyer the funds to purchase the property is referred to as the “lien holder.” The lien holder will record a document, the lien, at the County Courthouse showing that they are owned funds by the purchaser of the house, and this document is recorded in the public record just like a deed. The lien holder almost always has their own requirements concerning what is required of the purchaser to buy the property. Most often, this involves getting the property inspected, surveyed and appraised and obtaining a title insurance policy.
A title insurance policy is something that most people are not familiar with and are, more often than not, surprised at the cost. A title policy is, essentially, an insurance policy to insure that the seller passes to the buyer “good and clean title” to the property, free and clear of any liens.
What is a lien? A lien is an interest in a specific piece of property granted to a lender to secure the payment of a debt. A mortgage is the type of lien most people are familiar with. In real estate, the lien takes the form of a recorded document, which is filed at the county level in just the same way as a deed is filed. If a lien is filed against a piece of property under contract to sell, the property cannot be transferred until the lien is paid, or satisfied.
In order to determine the cost and scope of the title insurance policy, the title company will complete a “title search.” This is where a researcher reads through all of the recorded deeds and property records affecting or attaching to the property to determine who legally owns the property and whether it can be transferred to the buyer. If an outstanding lien is discovered on the property the seller will need to pay it off before they can transfer title to the buyer. By way of example, if a seller has failed to pay their property taxes and the county has recorded a tax lien against the property, the title company will require that funds be withheld from the seller’s proceeds to pay off the lien. The seller will then receive the balance of the funds, after all liens are paid off and satisfied.
In order to finalize the sales transaction, the buyers and sellers, along with the title company, will meet together at what is referred to as a “closing.” At the closing, a closing agent or closing coordinator will verify the identity of all the parties and then give you stacks and stacks of documents to sign. The amount of documents is usually overwhelming – even to lawyers!
Most of the documents will be unfamiliar to the average person, so I like to advise people to take their time, read through the materials and ask questions of their realtor, lawyer or closing coordinator if they are uncomfortable or do not understand something. Additionally, most people aren’t aware that they can request copies of these documents ahead of the closing date. If it is your first time buying or selling a property, you might find it helpful to review the documents before you’re sitting a room with a bunch of strangers!
At the closing, the escrow agent (the person who is responsible for handling the money) will confirm that valid funds have been received from the buyer and, if applicable, the lending company, and then initiate the release of the funds to any lien holders and the seller. All of this is typically done via wire transfer.
The closing coordinator keeps all the original documents for recording and dissemination to the appropriate parties. It is always a good idea to make a calendar note a few weeks after your closing to make sure that you have received your copy of these documents, especially the deed. I am always surprised at the number of people that don’t have a copy of the deed to their own home.
In coming articles, I will address the more common issues I see on behalf of both buyers and sellers.
-Nichole Humes, Esq.