TITLE INSURANCE PRIMER

THE PARTIES IN A TRANSACTION

There are few business transactions with more importance than those related to the sale and purchase of real estate. The purchase of a home is usually the largest, single expenditure most families will ever make. To these families, we at Old Republic Title play a critical role in the real estate transaction.

In most cases, a property owner will approach a real estate agent and offer a property for sale. The agent will then advertise the property and conduct a search for potential buyers. Generally, a number of potential buyers will respond to the agent's listing, depending upon real estate market conditions and general economic conditions at the time. The agent, working with the client, then determines which of the potential buyers is financially qualified to enter into sale price negotiations with the property owner.

Once a qualified buyer is found and a sale of property is arranged for and completed, the agent is compensated in the form of a commission. This commission is normally paid by the property seller and is based on a percentage of the final sale price of the property. The actual dollar amount of the commission, as well as the general terms of the agent's services, are specified in a listing contract or listing agreement.

Once the buyer and seller have agreed on a purchase price, they enter into a Purchase Agreement or Contract. The contract sets out the terms of the agreement such as price, closing date, contingencies, etc. It is recommended that the parties have the advice of their lawyers before signing the Contract, since once it is executed it defines the terms of the sale.

The parties' attorneys will continue to provide legal advice to their respective clients until the real estate transaction is completed.

Most people do not have enough cash to purchase property on an all-cash basis and must therefore look toward one of the many sources of financing available today. The basic arrangement is that someone will lend the buyer enough money to purchase the property under certain conditions. The conditions require the purchaser to repay the monies according to a known repayment schedule, and pledge the property as security for the debt.

When you borrow money, the lender is in fact making an investment in which the lender will earn interest. Your payments will usually be made on a monthly basis and are calculated so that the entire amount of principal and interest due is repaid in a fixed number of years. If the entire debt will not be paid in this time (i.e., fully "amortized") the total amount left to be paid is called a "balloon" payment.

The lender first processes and underwrites the buyer’s application. This involves ordering credit reports, appraisals, verifications of salary, verification of debts, and possible investor and private mortgage insurance company approval. When loan approval appears likely, title insurance is ordered, often by the real estate agent.