In the second installment of my series on closing costs, I will tackle title charges. Generally speaking, when you buy or sell a home, the closing of the transaction takes place at a title company. The title company has two main roles: 1. escrowee and 2. issuing title insurance. As escrowee, the title company receives funds from the buyer and lender and disburses the money at the end of the closing based on the parties instructions. Title insurance insures the buyer’s clear title to the property. Title companies don’t work for free, so there are some costs associated with the services they provide.
This fee is for the title company’s escrow services, and if there is a lender involved, for the closer to be the eyes and ears of the lender at the closing table. The amount of the fee depends on the purchase price of the property, and it generally runs between $1,100 and $1,900. The buyer pays this charge unless it is a cash transaction, in which case the parties split the charge.
Owner’s Title Policy
The owner’s title insurance policy is purchased by the seller. To produce a title insurance policy, the title company first conducts a title search to determine any title defects in the public record. Things such as mortgages, easements, mechanics liens, outstanding judgments, etc., are considered unpermitted title defects and must be removed by the seller prior to or at closing to pass clear title to the buyer. In other words, if after the closing someone knocks on the buyer’s door claiming that the property is really theirs, the buyer has insurance to cover the costs of defending the claim and any losses sufferred as a result. The cost of the policy is based upon the purchase price, and it ranges from $1,200 to $3,000. The title company will also perform a second search on the day of the closing, for which it charges each side approximately $125.
The loan policy is similar to the owner’s title insurance policy, except that it is insures the buyer’s lender from losses suffered as a result of title defects. The buyer pays the cost of this policy, which generally costs around $500. The lender may request coverage in addition to the standard loan policy in the form of endorsements, which generally cost an additional $150-$200 each.
Closing Protection Letters
Illinois law requires that the title company issue a closing protection letter to the buyer, seller and lender. The letter offers protections to the parties in addition to those offered in the owner’s title policy and loan policy. Specifically, if the closing funds or documents are lost due to fraud or negligence, the parties have a financially solvent entity (the title compay) from whom to recover. The cost of this letter is $25 for the buyer and lender (both paid by the buyer) and $50 for the seller.
Chain of Title
The lender requires a 24-month “chain of title” report from the title company. The purpose is to determine how many times the property has been conveyed over the preceding two years. Several conveyances for steadily increasing amounts in a short period of time is one indication of mortgage fraud, and the lender may not fund the loan if it sees that kind of pattern. The cost of the chain of title is $250 and is paid by the buyer.
This is my description, not the title company’s. The title company receives and sends a number of wire transfers, for which it charges roughly $40 each. In addition, the title company will receive a loan package via email, which the closer will print for the buyer’s signature. For this service, the title company will charge approximately $40.
There are additional costs which appear on the title invoice, which are collected by the title company, such as transfer taxes, recorder’s fees, etc. Those are not what I would consider “title charges,” and I will cover those in a couple weeks.
You may be thinking to yourself, “Gee, that’s all great, but how do I figure out the title costs with any specificity?” The good news, is that I have a tool provided by my friends at Citywide Title that will give you a fairly precise breakdown of all of the closing costs. Please contact me at email@example.com or at 773-632-8330 to request a breakdown! To see what my clients have to say about me, please visit me at avvo.com.