As a real estate attorney in Michigan, I’m often asked what the difference is between using a real estate attorney and a title company in a real estate transaction.
A title company ensures that a legal title to property or a piece of real estate is legitimate. And a title insurance company or a title agent searches the public property records. They’ll verify a property’s chain of title. They confirm all liens on the property as to what’s valid and what’s not. They also insure the past and present ownership interest in a piece of real estate. Title agents then issue a title insurance policy for that property, usually for the amount of the purchase price or for the amount of the mortgage. Title insurance will protect the new owner of a property or the lender. They’re doing this to protect against future lawsuits or claims against the property that evolve from disputes between parties over a property ownership.
You can have parties who are no longer on title, but they may have a claim against the property. This is what title insurance will protect against. Title companies will also facilitate closings between a buyer and a seller or a lender, and they handle the money that’s exchanged between the parties of the closing. They also file and record the appropriate real estate documentation with the county records or what we call the county recording office. They also coordinate with the municipalities as well. So a property transfer affidavit is filed with the city, not with the county.
But issues regarding a valid chain of title pop up on a regular basis. And while a title agent may have experience on how to correct many minor issues, they usually don’t have law degrees and they cannot provide legal advice to parties in a transaction when more serious legal issues arise and these title issues will affect ownership rights. This is where attorneys, real estate attorneys, come in to play.
Realtors, as well as buyers and sellers and lenders, all benefit from working with attorneys as the attorney will review the purchase agreement. They can also answer legal questions concerning the contract or the negotiations, and how that might affect a property’s title. Attorneys are the only professionals that can give a legal opinion on how a party can hold title to a property. So there’s many questions that come up, many issues on a regular basis: questions such as, what’s an acceptable exemption, or an exception to a title policy? What’s your legal obligation to your lender when you’re closing out a transaction? What are the legal rights of the buyer or the seller?
A very common question I get concerns restrictive covenants in a deed, which covenants or which promises are valid and which aren’t, and what if a title to a property is clouded? These questions are something that only a real estate attorney can provide a legal answer to. Also, will an escrow holdback affect the legal rights to either party? None of these questions can be answered by a title agent or a realtor. Only a licensed real estate attorney in the state in which the property sits can answer these questions.
So, obtaining title insurance is required if you’re going to go get a mortgage or if you’re going to go sell a piece of property to a buyer who wants to make sure that you are the actual legitimate owner of this property. Getting a real estate attorney is not mandatory, although having title insurance is not optional.
It is optional to hire a good real estate attorney to review your legal documents before you close and you want to have one to prevent legal problems in the future. So while it may be optional, it really should be a mandatory item on your list when you’re buying or selling a piece of property.