Using a real estate closing attorney is required by some states, but you should still consider purchasing an owner’s title insurance policy to protect yourself.
Q: I wrote to you earlier regarding a suit to partition elicited by the co-owners of my home. I owned the home with a friend and when he died without a will, they became my co-owners. In lieu of filing suit, I have agreed to buy them out for a price which is probably less than the house is worth.
My lawyer insists that I send him a certified check for the amount, payable to him, and he will deposit it in his escrow account. I have never heard of this and do not believe this is a legitimate process.
To whom should the check be addressed? The co-owners are extremely difficult and will not communicate with me and I do not know how to proceed. Please advise me as to what I should do and thank you for your detailed explanation.
A: If you’re uncomfortable putting the certified check into your attorney’s escrow account, it doesn’t say much for your trust level with your attorney. Where did you find this attorney and why are you so suspicious of him?
There are a couple of ways to buy and sell properties. In some states, the purchase and sale of properties is handled through title insurance companies. In other states, attorneys handle the paperwork and the closing process. In all cases, you can protect yourself by using a title insurance company in the purchase of a home.
We hear frequently from buyers telling us that they don’t understand why they need to buy an owner’s title insurance policy when they purchase a lender’s title insurance policy during the course of buying a home.
Your example is a clear example of where a title insurance policy would help. Title companies and title agents play a crucial role in real estate closings. In many, if not most, states, the large national title insurance companies have a certain level of responsibility for their agents. When you hire a title insurance agent and that agent fails to perform duties that are required during a real estate closing, the larger title insurance company may be responsible for that agent’s failure to act properly.
On one level, if the title agent fails to handle money properly, the underwriter (also known as the title company) that is backing the transaction, may have to step into the agent’s shoes and make good on any payments that may have gone missing.
On a second level, if you buy property and there is a problem with the documentation, you have a title company that has issued you a title insurance policy that should be willing to protect you from any issues that come up.
For example, if you think you have three new co-owners and sign documents with those people, pay them money and later find out that you were missing one co-owner, the title company should have issued you a title insurance policy naming you as the rightful owner of the property. Now if that newcomer to your transaction makes a claim to the property, you have a title insurance company that should defend your ownership in the property.
In your case, you might want to see if the attorney you are using is actually working on the transaction and plans to obtain title insurance for your purchase. If he or she is working on behalf of a title or escrow company, then you might want to know what title company he or she represents and obtain any documentation from the title company to tell you that the agent is in good standing and that your interests in the transaction are protected by the title company. In some states you receive a letter that might be called a “closing protection” letter.
You can and may want to check your attorney out with your state licensing department. All of these checks can give you some comfort.
Finally, it is quite common for real estate attorneys to deposit funds into their client funds account to disburse the funds in accordance to the requirements of the real estate transaction. Depending on the custom in your area, it may be that most real estate attorneys in the area handle real estate transactions in just this manner. You can ask around and see how closings occur where you live. We suspect you might find your attorney’s request to be quite normal.
On the issue of title insurance, if you had a lender in this transaction, you might think that buying a title insurance policy for the lender would be good for you, but that policy only protects the lender. It might help you indirectly, but you’re better off making sure that when you buy a home you have an owner’s title insurance policy.