Understanding Title in the United States - Foreign investor

Buying & Selling Real Estate
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Understanding Title in the United States - Foreign investor

Juan Pardo
Member since 2020 · 201 posts · 118 votes

Hi all! I created this thread as a spin-off from this other thread:


We Loaned on a Stolen House

https://www.biggerpockets.com/...

I am trying to understand the differences about closing on a property, and particularly Title, between my country, Spain, and the US.

Basically I dont understand how a purchaser in the US can be in the hand of private companies to research Title. Isnt there one single public registry where a buyer can directly and by himself review title, encumbrances, liens etc???? And I read insurance is needed to buy a property, which sounds shocking to me, meaning there may be a high risk involved in something as simple as purchasing property.

In Spain, where I live transactions regarding property are supervised, governed and administered by government appointed officials, notary public and land registrar, and they can solve any doubts a prospective buyer has about a property transaction.

Title can be reviewed asking the Land Registry for the property's file. And a prospective buyer can see the current encumbrancs, liens etc on a property, and also, if he wishes, the title history, how title passed from one owner to the next, and every marginal note, every lien, everything, that happened to that property over time.

Here in order to become a notary public, candidates have to go to law school first and then, after law school, they need to be better than other candidates in a public exam that takes several years to prepare. There are very few openings for this profession and sucessful candidates have to be better than all the other that sit the exam. There is a lot of competition because basically this is an extremely well paid job, and a job for life. Land registrars are responsible for the public recording of property transactions within their jurisdiction. Becoming a land registrar is even harder than becoming a notary public. These people know the law really well.

Notary offices also can explain buyers how to file the taxes derived from purchasing or selling property, and point them to the relevant IRS offices to liquidate their taxes.

The land registry here is a nationwide public system where everything is recorded. For instance, I can obtain information on a property asking the relevant registry, and they send me the property file, with everything that has been recorded, mortgages, tax liens, easements, etc etc.. and it can be directly reviewed by the buyer, or one can ask a lawyer to have a look at it.

So buyer and seller in Spain exchange the check at the notary public office. Sometimes it is needed to withhold some money to liquidate pending payments related to the property (maybe somehow similar to escrow), but this is a minor thing and we do not have to use insurance for any of this since the transaction is done with the supervision of a notary public.

I have to learn a lot more about the US system. To me it is baffling that all the information regarding Title cannot be found in one single registry. It does not sound very safe for prospective buyers. There has to be a place where these title companies look to get all the relevant information on a property.. even if you have several administrative layers, federal, state, county etc.. there should be single a registry, or am I mistaken?

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David M.
Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
6y

@Samantha Rye

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  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    6y

    @Juan Pardo

    Every country is different.  I understand in Ukraine i believe their transactions are done in under a week, start to finish.  No inspections and not much of anything apparently for Title searches, much less insurance.

    I don't know what taxes you have to file.  Property tax credit/debits are handled at closing and pro-rated to the day between the buyer and seller.

    As I am to understand, with multiple administrative layers liens need to filed at the property level.  Either way, thats what licensed Title searchers are for and the requisite Title insurance (whose policy prices I believe are regulated across the country).  Maybe because I am used to it, but I'd rather somebody else the liability for the Title since I don't want to become an expert, nor the time, to research Title.

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  • Juan Pardo
    OP
    Member since 2020 · 201 posts · 118 votes
    6y
    Originally posted by @David M.:

    @Juan Pardo

    Every country is different.  I understand in Ukraine i believe their transactions are done in under a week, start to finish.  No inspections and not much of anything apparently for Title searches, much less insurance.

    I don't know what taxes you have to file.  Property tax credit/debits are handled at closing and pro-rated to the day between the buyer and seller.

    As I am to understand, with multiple administrative layers liens need to filed at the property level.  Either way, thats what licensed Title searchers are for and the requisite Title insurance (whose policy prices I believe are regulated across the country).  Maybe because I am used to it, but I'd rather somebody else the liability for the Title since I don't want to become an expert, nor the time, to research Title.

    I learnt to review title in order to participate in court foreclosures. In that situation the other option is taking the property file (long!) to an attorney or land registrar to review, but the downside is if you do that you reveal your play, so there is more competition to buy property.

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  • Juan Pardo
    OP
    Member since 2020 · 201 posts · 118 votes
    6y
    Originally posted by @David M.:

    @Juan Pardo

    Every country is different.  I understand in Ukraine i believe their transactions are done in under a week, start to finish.  No inspections and not much of anything apparently for Title searches, much less insurance.

    I don't know what taxes you have to file.  Property tax credit/debits are handled at closing and pro-rated to the day between the buyer and seller.

    As I am to understand, with multiple administrative layers liens need to filed at the property level.  Either way, thats what licensed Title searchers are for and the requisite Title insurance (whose policy prices I believe are regulated across the country).  Maybe because I am used to it, but I'd rather somebody else the liability for the Title since I don't want to become an expert, nor the time, to research Title.

    How do you know about Ukraine? Are you from there? I have heard there are still very good opportunities there, but it should be risky..

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  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    6y

    @Juan Pardo

    No, I haven't done deals in Ukraine.  Just what I heard talking with some Realtors from Ukraine...

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  • Peter Walther
    Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes
    6y

    This will be a pretty complicated discussion.  By way of background I did title insurance claims throughout the US for various underwriters for about thirty years.

    To begin with, as I understand it, notary publics in the US serve a different function than notaries in other countries.  Their main function here is to take the acknowledgement of the signor of a document that the signature is theirs and to verify their identity through state approved identification.  I believe notaries may be prohibited from advertising their services in Spanish to avoid confusion because of the different role they play in other countries, but I may be mistaken.

    Each state has it's own requirements for the acceptable form of ID and record keeping requirements.  Some states such as CA require the notary keep a log, some require a thumb print, some don't require any documentation.  I've spoken with many notaries about questionable documents and have often been told while they don't remember that specific transaction they would never take an acknowledgment without proper ID.  I've had others who have admitted their boss brought in a document signed by someone else but because the boss vouched for the authenticity of the signature went ahead and notarized it anyway.  I've had title company employees tell me Mary is the only notary in the office so all the closers take the signed docs to her to notarize even though she never met the signor.  It's far from a perfect system and is open to fraud and abuse and I agree with an earlier poster who has concerns about remote notarization.  It will increase fraud in my opinion.

    As far as searching a land registry I believe your describing a Torrens system where the state assures a real property purchaser of the title status of a particular property.  One does not even search the title but applies for a title certificate which shows the property now being registered in the buyers name.  If there's an error resulting is a loss the state pays the damaged party in accordance with state law.  I believe there are only a handful of states where a Torrens system is used.  The other states rely on an abstract system where counties, a subsidiary government body, is charged with accepting documents for recording and maintaining an index of them.  The county does not examine the document for legal sufficiency of effect, only that they are entitled by statute to be recorded.  The effect of recording is to provide constructive notice to third parties of the documents existence.  As an aside, I believe most people are unaware that in in Florida, a document is considered recorded and provides constructive notice when it is deposited with the Clerk of the Court and is assigned a document number.  It does not need to appear in the indices for it to impart notice and purchasers take subject to it.

    One does not need to be an attorney to search, and more importantly in my opinion, examine title, but to do it correctly one needs time and training in the county and state where the property lies.  A title examiner NY cannot start searching and examining title in Texas without significant training because each state and even each county has their own idiosyncrasies in recording and indexing which, if you don't know, can cause a defect in title to go unidentified.

    Title insurance is not required for the purchase of property though to my knowledge most lenders will not loan money without being insured under a title policy.  In my opinion it is foolish for anyone, even someone schooled in searching and examining title, to put significant money at risk without getting a policy because not only does it indemnify you for a loss related to a covered defect identifiable from the record, it also indemnifies for a covered loss which can't be found in the record such as fraud, forgery and incompetency.  While many feel title insurance is not worth the money because they pay out relatively little in losses as compared to the premium, I believe that's because they spend much of their income in the search and examination process.

    The closing of a purchase is frequently handled by a title company as a matter of convivence for the parties though it can be closed by a separate attorney with the title insurance issued separately.  I believe that's required in NC.  For some clarification there are generally two parties involved in the issuance of a title policy.  First there is the policy issuing agent, the consumer facing part of the two.  Then there is the title underwriter, who is financially responsible for receiving, investigating and paying covered claims.  For further clarification, some agents are owned by an underwriter, they're referred to as direct shops.  Then there are independently owned agents who are authorized to issue policies for one or more underwriters.

    Escrow is a separate function that is frequently handled by the same title company, again as a matter of convenience though it can be handled by a separate escrow company. I believe that's common in CA.  The escrow agent is responsible for collecting the purchase funds from the buyer and the buyer's lender if there is one and obtaining payoff's from lien holders and seeing to their payment, paying property taxes that may be owed and any other charges required to be paid.  Either the title company or the escrow company should be responsible for the recording of the proper docs.

    This is a brief outline of the process.  There are hundreds of possible variations and thousands of things that can and do go wrong.  I hope it helps and good luck.

    1Reply
  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    6y

    @Samantha Rye

    1Reply
  • Juan Pardo
    OP
    Member since 2020 · 201 posts · 118 votes
    6y
    Originally posted by @Peter Walther:

    This will be a pretty complicated discussion.  By way of background I did title insurance claims throughout the US for various underwriters for about thirty years.

    To begin with, as I understand it, notary publics in the US serve a different function than notaries in other countries.  Their main function here is to take the acknowledgement of the signor of a document that the signature is theirs and to verify their identity through state approved identification.  I believe notaries may be prohibited from advertising their services in Spanish to avoid confusion because of the different role they play in other countries, but I may be mistaken.

    Each state has it's own requirements for the acceptable form of ID and record keeping requirements.  Some states such as CA require the notary keep a log, some require a thumb print, some don't require any documentation.  I've spoken with many notaries about questionable documents and have often been told while they don't remember that specific transaction they would never take an acknowledgment without proper ID.  I've had others who have admitted their boss brought in a document signed by someone else but because the boss vouched for the authenticity of the signature went ahead and notarized it anyway.  I've had title company employees tell me Mary is the only notary in the office so all the closers take the signed docs to her to notarize even though she never met the signor.  It's far from a perfect system and is open to fraud and abuse and I agree with an earlier poster who has concerns about remote notarization.  It will increase fraud in my opinion.

    As far as searching a land registry I believe your describing a Torrens system where the state assures a real property purchaser of the title status of a particular property.  One does not even search the title but applies for a title certificate which shows the property now being registered in the buyers name.  If there's an error resulting is a loss the state pays the damaged party in accordance with state law.  I believe there are only a handful of states where a Torrens system is used.  The other states rely on an abstract system where counties, a subsidiary government body, is charged with accepting documents for recording and maintaining an index of them.  The county does not examine the document for legal sufficiency of effect, only that they are entitled by statute to be recorded.  The effect of recording is to provide constructive notice to third parties of the documents existence.  As an aside, I believe most people are unaware that in in Florida, a document is considered recorded and provides constructive notice when it is deposited with the Clerk of the Court and is assigned a document number.  It does not need to appear in the indices for it to impart notice and purchasers take subject to it.

    One does not need to be an attorney to search, and more importantly in my opinion, examine title, but to do it correctly one needs time and training in the county and state where the property lies.  A title examiner NY cannot start searching and examining title in Texas without significant training because each state and even each county has their own idiosyncrasies in recording and indexing which, if you don't know, can cause a defect in title to go unidentified.

    Title insurance is not required for the purchase of property though to my knowledge most lenders will not loan money without being insured under a title policy.  In my opinion it is foolish for anyone, even someone schooled in searching and examining title, to put significant money at risk without getting a policy because not only does it indemnify you for a loss related to a covered defect identifiable from the record, it also indemnifies for a covered loss which can't be found in the record such as fraud, forgery and incompetency.  While many feel title insurance is not worth the money because they pay out relatively little in losses as compared to the premium, I believe that's because they spend much of their income in the search and examination process.

    The closing of a purchase is frequently handled by a title company as a matter of convivence for the parties though it can be closed by a separate attorney with the title insurance issued separately.  I believe that's required in NC.  For some clarification there are generally two parties involved in the issuance of a title policy.  First there is the policy issuing agent, the consumer facing part of the two.  Then there is the title underwriter, who is financially responsible for receiving, investigating and paying covered claims.  For further clarification, some agents are owned by an underwriter, they're referred to as direct shops.  Then there are independently owned agents who are authorized to issue policies for one or more underwriters.

    Escrow is a separate function that is frequently handled by the same title company, again as a matter of convenience though it can be handled by a separate escrow company. I believe that's common in CA.  The escrow agent is responsible for collecting the purchase funds from the buyer and the buyer's lender if there is one and obtaining payoff's from lien holders and seeing to their payment, paying property taxes that may be owed and any other charges required to be paid.  Either the title company or the escrow company should be responsible for the recording of the proper docs.

    This is a brief outline of the process.  There are hundreds of possible variations and thousands of things that can and do go wrong.  I hope it helps and good luck.

    Thanks for your detailed explanation! It totally makes sense that one needs title insurance in the US if there is no administrative body or public official (land registrar) that is responsible for certifying the status of the property (owner, encumbrances etc) and its accuracy.

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y

    The US has 50 states, 1 federal district, and 5 territories.....so 56 different ways title and real estate are handled. Combine that with also differences at the county levels as well, and it is simply too hard to say title and real estate work a certain way in the USA. I do business across a half dozen states, and each is drastically different from the others.

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  • Juan Pardo
    OP
    Member since 2020 · 201 posts · 118 votes
    6y
    Originally posted by @Russell Brazil:

    The US has 50 states, 1 federal district, and 5 territories.....so 56 different ways title and real estate are handled. Combine that with also differences at the county levels as well, and it is simply too hard to say title and real estate work a certain way in the USA. I do business across a half dozen states, and each is drastically different from the others.

    Thanks for your answer! What are the biggest differences you encounter in different states?

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  • Ronald RohdePro Member
    Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
    6y

    It can be a lot to process in the US, I have a client who came from Spain. The only commonality was that he knew he should hire a lawyer to guide through the process. Wherever, you end up looking, consult a local lawyer who has a fiduciary duty to you.

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