This is information you need to know when conducting a title search during the process of refinancing. We’re going to discuss legal considerations and practical considerations you need to think through when conducting this title search, the steps involved, mistakes to avoid, and the costs.
Why a Title Search Matters During Refinancing
When you are doing a title search during the process of refinancing, you should consider the reasons for it. Most often it relates to taking someone off the title.
One reason you may want to take people off the title during the refinancing process is that the person on title might have current or prior legal issues, for example, lawsuits, court judgments, or delinquent taxes.
Title Search For Refinancing
If you have an opportunity to take them off the title, like when refinancing, that can help protect the value of the property in the long run by only leaving the person on title who will not have these legal problems and therefore not threaten or harm the value of the property.
Why Refinancing Is the Right Time to Review Title
Most mortgages, assuming there’s a mortgage on the property already, have what’s called a due-on-sale clause. If you were to transfer ownership of the property without paying off the mortgage, the bank could call the loan, whatever amount of balance is due, immediately, and you would have to pay the loan back at that time. If you fail to repay the loan, the consequence would be foreclosure.
There are federal exceptions: parents to children, into a trust of which you are the sole beneficiary, upon divorce, a divorce decree. But if none of them apply, you may not want to take that risk, and once refinancing, the current mortgage will be paid off, so there’s no issue about due on sale, and you have the opportunity to review title without running afoul of the prior mortgage.
The Steps Involved in Reviewing Title During Refinancing
The first step is to get preapproved for refinancing by contacting a lender, a bank, a loan broker, someone who will evaluate your financial circumstances to ensure you are qualified. Otherwise, the rest of the steps don’t matter because you’re not qualified.
The second step is to hire an attorney, who will draft the deed paperwork and review the title report if one was produced, which most likely means a title company was selected to run the title search.
The third step is drafting the paperwork, including the deed itself, which lists the grantor, the current owners, the grantees (the people becoming the owners), and the legal description, including the lot and block number and boundary lines.
The fourth step is getting these documents signed and delivered to the title company. Once the refinance is fully clear to close and approved, the title company will have the recorded deed in one hand and the financing funds in the other, and will deem the refinance and real estate closing complete.
The last step is recording those documents: the deed, the GIT/REP form, and the affidavit of consideration. The title company will handle recording and submit via e-recording to the county. In about 30 days or less, the county will update its records online with official instrument numbers, book numbers, and page numbers; about 30 days after that, the city will update its tax records to reflect the new owner.
Adding Someone to Title Instead of Removing Them
Sometimes you’re not taking someone off title as part of refinancing; you’re adding someone. This might be a spouse, in which case it makes sense to add everyone to title since they have marital interest that attaches anyway.
Another reason is if someone is contributing credit, income, or other financial factors that allow the refinancing to proceed, since some lenders might not allow it otherwise.
If the person is only coming on for credit or income and not contributing to mortgage payments, utilities, or maintenance, you should strongly consider what happens if you sell the property in the future, since any refinances and sales will require that person’s approval.
Common Mistakes to Avoid
Nobody wants to waste time and money when preparing these conveyance documents: the deed, affidavit of consideration, GIT/REP form. Make sure the attorney, title company, and lender can review these documents in advance, or they could delay your refinancing closing.
Downloading forms online and using those is another mistake, since they often miss critical steps, like language about relinquishing a marital interest if a spouse is coming off title.
Deeds have been recorded without a legal description, which creates a major problem later when someone evaluates title and doesn’t find the legal description, requiring a corrective deed and creating recording problems.
