• What is title?

    Title is a bundle of rights in a piece of real property in which a party owns either a legal or equitable interest. Evidence of title is established in a title report written up by title insurance companies, which show the history of the title as determined by recorded public record deeds, as well as encumbrances, easements, liens, or covenants.

  • What is a deed?

    A deed is legal document that passes, affirms, or confirms an interest, right, or property that is signed, attested, delivered, and in some jurisdictions, sealed. It’s not proof of ownership, and doesn’t do away with rights others may have on the property. In addition, a deed does not indicate liens or claims that may be outstanding against the title.

  • What is a conveyance?

    The transfer of legal title of real property from one person to another. This term may also refer to the granting of an encumbrance such as a mortgage or a lien.

  • What is a property's legal description?

    A property’s legal description is the geographic boundary of the property. If a legal description is stated incorrectly, it must be fixed through a property survey, or else it could become a cloud on title.

  • What is a property abstract?

    An abstract is a collection of legal documents that chronicle transactions associated with a particular parcel of land, including deeds, mortgages, wills, probate records, court litigations, and tax sales. The abstract shows the names of all property owners, how long a particular holder owned it, and the price of land when it was sold.

  • What is an abstract of title?

    An abstract of title is the condensed history of the title to a particular parcel of real estate. It contains a summary of the original land grant and all subsequent conveyances and encumbrances affecting the property. It also contains a certification by the abstractor that the history is complete and accurate. The abstract of title furnishes the raw data needed to prepare a title policy.

  • What is a title search?

    A title search is an investigation to uncover any possible issues that may ‘cloud’ (or cause problems) in the transfer of property ownership. The search is conducted through the ‘title plant’ (official title records) and includes the current vesting and legal description of the property and any liens along with court records.

    If clouds are discovered, the next step is to locate “curatives” (ways to cure or fix the title defects). This may include actions needed to remove liens, change vesting, and/or otherwise modify the title so that the transfer of ownership can take place.

  • What is chain of title?

    The sequence of historical transfers of title to a property. The “chain” runs backwards, starting with the present owner and runs in reverse chronological order to the original property owner.

  • What is a title report?

    Also known as a title commitment or binder, a title report is a document containing the results of the title search.

  • What is a title commitment?

    A commitment (known as a “prelim” in California) is the underwriter’s promise to issue an insurance policy. It contains all the information that will be included in the actual insurance policy, plus any items uncovered during the title search that need to be cured (curative items). The commitment can be updated throughout the curative process to reflect changes (e.g., loan amounts, updates in vesting, etc.) that are binding (except in California).

  • What is the title binder?

    The title binder (sometimes referred to as an “interim binder”) is a written commitment by a title company that it will provide title insurance coverage to the buyer. It does not contain the title policy itself, but may contain a list of clouds on title, liens, judgments, and other encumbrances which must be cured before the title policy is issued.

  • What is an easement?

    An easement is an agreement which gives an entity the right to access a certain part of the property (e.g., a utility company, to maintain a sewer or natural gas line). Title insurance guarantees that there are no unstated easements on its policies.

  • What is a title lien?

    A lien is a claim to a piece of property for a specific dollar amount. It is filed in the county system of records and can be one of the causes of a clouded title.

    A “voluntary lien” is a lien that someone agreed to at some point in time. For example, if a seller once obtained a home equity loan on their property, they voluntarily agreed to give the lender a claim to a piece of their property to use as collateral. Likewise, any buyer/borrower who obtains a mortgage voluntarily agrees that the mortgage serves as a lien on the property.

    If an owner of a piece of property fails to pay their bills (e.g., a tax bill, garbage bill, contractor bill, etc.), the party who is owed money can file a lien on the property. This is an “involuntary lien.” Once it is filed, the lienholders have a right to a piece of that property, up to the amount of the lien. Liens are generally first-come, first-served; the first person to have a lien on the property is paid back first.

  • What is a superpriority lien?

    Lien priority determines the order in which lienholders are paid. In most states, liens have priority in the order they were filed in the county recorder’s office; this is known as the “first in time, first in right” rule. Generally, when a home is purchased and a first mortgage is taken out, the mortgage is recorded first and becomes the first lien in line.
    However, some states have passed statutes that give certain liens a higher priority than others. Common examples includes mechanic’s liens or homeowner association liens.

  • What is a mechanic's lien?

    A mechanic’s lien is a legal claim for unpaid construction work. When a contractor or subcontractor files a mechanic’s lien, they gain a security interest in the home or property.

  • Can a property owner remove a lien?

    If the property owner (or someone acting on the owner’s behalf) pays the lien, the owner can request that the lienholder remove it. Liens are often not removed because either the property owner or the lienholder (or both) neglect to file a release. As a result, the lien often lies dormant until it’s uncovered during the next transaction.

  • How are title defects "cured" (resolved)?

    The traditional process of curing title involves resolving the issues listed on the commitment through research and/or payment of legal claims. In the case of a lien, once it’s been certified as a false positive or paid, a lien release is submitted to the county or local recorder’s office.

  • What is an encumbrance?

    An encumbrance is a right to, interest in, or legal liability on property that does not prohibit passing title to the property, but may diminish its value. Encumbrances may be financial (e.g., liens), or non-financial (e.g., easements and private restrictions).

  • What is the system for maintaining deeds and title records?

    County or local recorder’s offices are the official systems of record for deeds and any issues which could cloud title. The United States has more than 3,000 counties, each with a different physical medium for their data (paper, legacy electronic, modern electronic) and different regulations. The complex interplay of state, federal, and county rules makes researching and defending title issues a complex operation. This complexity is part of what led to the inception of the title insurance industry.

  • What is an Owner's title policy?

    An Owner’s title policy is a one-time title insurance premium a consumer can choose to pay for at closing. It is the only coverage for the homebuyer should a title problem arise, and it protects them for as long as they or their heirs have an interest in the property. The policy guarantees clear title to the property at the time of purchase. If a lien or title issue is discovered after closing, the policy issuer will cover the costs of the claim, as long as the lien or title issue occurred prior to the closing date.

  • What is a Lender's title policy?

    A Lender’s title policy is an insurance policy guaranteeing to make the lender “whole” if a title defect is later found that causes the financial loss to the lender. Most mortgage lenders insist that the borrower purchase a Lender’s title policy to protect the amount they lend from insured title risk loss. Potential losses include forged signatures, recording errors, deed indexing mistakes, unpaid property taxes, recorded liens, improper foreclosures, title search errors, undisclosed easements, and title claims by heirs and former spouses. If a homeowner fails to make payments on the loan for which the property is collateral, the lender will be first in line to collect if there is a foreclosure.

  • Are consumers required to purchase both an Owner's and Lender's title insurance policy?

    In a purchase transaction, most lenders require the consumer to purchase a Lender’s title policy to protect the amount they lend from. However, this policy only protects the lender’s interest in the property. A consumer has the option to also purchase an Owner’s title policy, which is the only policy that provides protection for the homeowner should a title issue arise.

    Adding an Owner’s policy to a Lender’s policy usually winds up costing the borrower only $50-$200 in addition to what a standalone Lender’s policy would have cost (though the breakdown gets complicated).
    For refinance transactions, only a Lender’s policy is issued alongside the new mortgage, at about half the cost of a purchase transaction. This is because the Owner’s title policy covers the homeowner for as long as they or their heirs have an interest in the property.

  • Why do I need title insurance for a refinance?

    When a homeowner refinances their mortgage loan, their old loan is paid off, voiding the Lender’s title policy they purchased. A separate Lender’s policy is then needed on the new mortgage to protect the lender’s investment in the property. This new policy also provides protection against events that may have transpired between the time the homeowner purchased the property, and when it is refinanced. For example, the homeowner may have failed to pay a contractor for home improvements, leading the contractor to file a mechanic’s lien which could threaten the priority of the new lender’s mortgage.

    In addition, lenders insist on a new title policy because it is a practical way to provide assurance to secondary-market investors that their security is valid and enforceable. It is not necessary for the refinancing homeowner to purchase a new Owner’s title policy, because that policy remains in effect and protects the homeowner’s interest in the property for as long as they own it.

  • Is title insurance always required?

    Title insurance is not required if the buyer is paying for the property without the assistance of a loan (which is really only the case in about 10 percent of all transactions). If the buyer chooses to go without title insurance, it’s up to them to make sure all legal documents are filed properly, and they bear the risk of any legal issues. For this reason, most individuals still choose to purchase title insurance, even when there is no loan.

    For loans for less than 20 percent of the property’s value, such as home equity loans, lenders often forgo the title process or request certain non-title insurance products (e.g., lien checks).

    Lenders could choose to go without title insurance for balance sheet loans (loans they do not sell to the secondary market). However, most lenders still require title services for these loans due to the risks involved.

  • How much does title insurance cost?

    In a purchase transaction, title insurance usually costs about 0.5 percent of a property’s selling price. In a refi, it costs about half that amount.

  • Can consumers shop around for title insurance?

    Yes. Homebuyers have a legal right to select their own title insurance providers, as well as all of their settlement service vendors. Federal law requires that borrowers be given a disclosure form to sign stating they have the right to choose their own service providers. However, studies have shown for decades that homebuyers often use the providers recommended by their advisor, which may be their real estate agent, loan officer or attorney. Legally, none of these advisors can require a homebuyer to use a specific company. Some complexity around this area happens during the resale process, where the buyer and seller usually have different real estate agents. Depending on geography, either the buyer’s agent or the seller’s agent (typically the latter) selects the title and escrow provider.

  • If title insurance is not paper, what is the "paper" you get?

    The document that usually shows ownership is called a grant deed. A grant deed is simply a statement on the transfer of ownership between parties. It’s admissible in court, and can be forged (which is a potential source of title fraud).

  • What is gap insurance?

    A title insurance policy that provides insurance coverage to the policyholder for title defects that may arise during a “gap period,” the time between closing a real estate transaction and the actual recording of the real property instrument. If county recording offices are unable to record documents in a timely manner (e.g., during office closures due to the COVID-19 crisis), the title insurer covers the gap and potential exposure to title claims. (See Five Solutions to Keep Closings Flowing During the COVID-19 Crisis)

  • How does title insurance differ from other types of insurance, such as car insurance?

    Title insurance protects against the past, whereas car insurance and other property/casualty (P&C) insurance lines protect against the future. A car insurance company has no control over whether the insured actually gets into an accident; they can only screen the probability upfront, not the actual event. Title insurance, in contrast, is researches all past actual events and resolves any issues or liens; the insurance guarantees the accuracy of that research.

    Therefore, title is traditionally more akin to errors-and-omissions (E&O) insurance (work done by the company is certified against its own demonstrable error), rather than P&C insurance (protection against events that can’t be precisely predicted).

  • What is a closing protection letter?

    A closing protection letter (CPL) is a type of non-title coverage provided to the lender by a title underwriter once an order is received. The CPL guarantees that the lender’s disbursement instructions are followed precisely. It also covers the theft of the money in escrow by any of the title employees (even though these employees usually belong to a different agency than the underwriter). For this reason, underwriters need to thoroughly vet the title agents they work with. (See Five Solutions to Keep Closings Flowing During the COVID-19 Crisis)

  • What is "vesting" as it relates to property ownership, and how does it affect your title coverage?

    A description of the current legal owners of the property, vesting may present the most serious type of cloud on title. By default, the vesting on a property is the same as that on the latest grant deed. However, if a marriage, divorce, or death has occurred since the last deed, then depending on the state, the vesting of the property can become a cloud on title.

    For example, when a married couple purchases a property, they are both named as the buyers on the grant deed. Should they later divorce, the spouse who is awarded the property still needs permission from the ex-spouse to sell or refinance the home, often through a quitclaim deed. If the owner does not obtain a quitclaim deed, when the property is sold to a new owner, the ex-spouse can come out of the woodwork at any time and lay claim to the property. As a result, there would be a total failure of title and the new owner would suddenly have no right to the property whatsoever. In instances like these, the title insurance provider loses a significant fraction of the value of the home.

    Finally, we use vesting when we record the documents of lien and property ownership during the closing of a transaction. Proper vesting is crucial to the customer in cases when property ownership changes hands, either in resale or refinance scenarios.

  • What is fee collaboration?

    Also sometimes called fee reconciliation, fee collaboration is a process that takes place early on in a transaction in which mortgage lenders and title companies communicate, share, receive, validate, and finalize closing documents, fee data, and transaction details. (See Tackling the Fee Collaboration Conundrum)

  • What is a title plant?

    A title plant is a database of property records, organized by location rather than by property owner. A title plant allows title searches to be completed quickly and efficiently by title companies so that a title can be cleared and title insurance issued. These title plants may be owned by the title company or may be a separate company with a formal information-sharing agreement with title companies – allowing title companies to access, update, and track a shared pool of property information.

  • How large is the title and escrow industry?

    Title and escrow is a $25-billion industry in the United States. Each year. consumers are charged $15 billion in title fees and $10 billion in escrow fees through the processing of roughly 10 million mortgages.

  • What is a title insurer?

    A title insurer is a company that directly underwrites and issues title insurance policies. North American Title Insurance Company is a title insurer. The title insurer keeps about 15 percent of the title premium, and the title agent keeps about 85 percent of the title premium (although this split differs across state lines and by insurer/agent contracts in states where the split is not set by state law).

  • What is a title agent?

    A title agent is a company that represents the title insurer in a real estate transaction. They attend the closing and execute the title process, which the insurer then underwrites. A title agent may be an independent third party, or an affiliate of the insurer.

  • What is the American Land Title Association (ALTA)?

    Founded in 1907, ALTA is a national trade association representing more than 6,400 title insurers, title and settlement agents, independent abstracters, title searchers, and real estate attorneys. Headquartered in Washington, D.C., ALTA has more than 40 committees and creates standardized title insurance policy forms, works to educate the public on property-related matters, and is involved with local, state, and federal regulatory efforts.

  • What is a notarial act?

    Any written narration of facts drawn up by a notary public, authenticated by the notary’s signature and official seal, and detailing a procedure that has been transacted by or before the notary in their official capacity. A notarial act is the only lawful means of proving those facts of which it is the recognized record.

  • What is a notary block?

    Also called a notary acknowledgment, a sworn statement made by a notary public that claims a specific person signed a form. In accordance with state law, the notary public is required to view government-issued photo identification in order to prove the signer is the authorized party.

  • What is a mortgage?

    A contract between a homeowner and a mortgage lender that creates a lien on a property.

  • What is a deed of trust?

    Like a mortgage, a deed of trust pledges real property to secure a loan. This terminology is used instead of “mortgage” in certain states, like California.

  • What is the Loan Estimate (LE)?

    Created by the Consumer Financial Protection Bureau’s (CFPB’s) TILA-RESPA Integrated Disclosure (TRID) rule, the Loan Estimate (LE) is a standard, three-page form that consumers receive after applying for a mortgage. It is intended to help the customer better understand the terms of their mortgage and make it easier for them to comparison shop with other lenders and mortgage products.

    An LE includes the estimated interest rate, monthly payment, total closing costs, estimated costs for taxes and insurance, and information on how the interest rate and payment terms may change in the future. It may also contain information on special loan features such as prepayment penalties and negative amortization.

    The lender must provide the LE to customers within three business days of receiving their application. The LE is not required on transactions involving reverse mortgages, a home equity line of credit (HELOC), a manufactured housing loan not secured by real estate, or a loan through certain types of homebuyer assistance programs; in those cases, the customer will receive a Truth in Lending (TIL) disclosure instead.

  • What is the Closing Disclosure?

    Created by the Consumer Financial Protection Bureau’s (CFPB’s) TILA-RESPA Integrated Disclosure (TRID) rule, the Closing Disclosure (CD) is a five-page form that provides customers with the final details about their mortgage loan. It includes the loan terms, projected monthly payments, and how much the customer will pay in fees and other closing costs.

    The lender must deliver the CD to the customer at least three business days before closing. This three-day window is intended to give the customer time to compare their final terms and costs to those estimated in the Loan Estimate (LE) they received shortly after completing their mortgage application. The period of three days also gives customers time to ask their lender any questions they have prior to closing.

    The CD is not required on transactions involving reverse mortgages, a home equity line of credit (HELOC), a manufactured housing loan not secured by real estate, or a loan through certain types of homebuyer assistance programs; in those cases, the customer will receive a Truth in Lending (TIL) disclosure instead.

  • What is the Good Faith Estimate?

    The Good Faith Estimate (GFE) is a form that a lender must give a consumer when they apply for a reverse mortgage. It lists basic information about the terms of the mortgage loan offer, including the estimated costs of the mortgage loan, to help customers compare offers, understand the real cost of the loan, and make an informed decision about choosing a loan.

    The lender must deliver the GFE to the customer within three business days of receiving their application or other required information. The customer can be charged a credit report fee before receiving the GFE, but they cannot be charged any other fees until receiving the GFE and indicating they want to proceed with the mortgage loan.

  • What is the Truth in Lending (TIL) disclosure?

    The Truth in Lending (TIL) disclosure is a form providing customers with information about the cost of their credit when they apply for a reverse mortgage, home equity line of credit (HELOC), a manufactured housing loan that is not secured by real estate, or a loan through certain types of homebuyer assistance plans. Customers receive the TIL twice: An initial disclosure when they apply for a mortgage loan; and a final disclosure before closing.

  • What is the HUD-1 Settlement Statement?

    Originally developed by the U.S. Department of Housing and Urban Development (HUD), the HUD-1 Settlement Statement is a standard government real estate form once used by settlement or closing agents to give buyers and sellers a complete list of their incoming and outgoing funds.

    The Real Estate Settlement Procedures Act (RESPA) required the HUD-1 form to be used as the standard real estate settlement form in all transactions involving federally related mortgage loans. However, after October 3, 2015, the Consumer Financial Protection Bureau (CFPB) TILA-RESPA Integrated Disclosure (TRID) rule consolidated the HUD-1 and the final Truth in Lending (TIL) disclosure into one form, the Closing Disclosure (CD). Today, the HUD-1 is still issued for reverse mortgages.

  • What is an adjustable-rate mortgage (ARM)?

    An adjustable-rate mortgage (ARM) has an interest rate that may change periodically depending on changes in a corresponding financial index associated with the loan. Generally speaking, a consumer’s monthly payment will increase or decrease if the index rate goes up or down.

    An ARM is considered a good option if the consumer plans to move prior to the end of the introductory fixed-rate period, wants a lower initial monthly payment, or if interest rates are expected to decline in the future. There are limits on how much interest rates and/or payments can increase each year or over the lifetime of the loan.

    Typically, an ARM is expressed as two numbers: The first number indicates the length of time the interest rate remains fixed, while the second number indicates how often the interest rate is subject to adjustment thereafter. For example, in a 5/1 ARM, the “5” stands for an initial, five-year period during which the interest rate remains fixed, while the “1” shows the interest rate is subject to adjustment once per year thereafter.

  • What is a fixed-rate mortgage?

    A fixed-rate mortgage charges a set rate of interest that does not change throughout the life of the loan. Although the amount of principal and interest paid each month varies from payment to payment (due to the different number of days in a given calendar month) the total payment remains the same.

    Fixed-rate mortgages are easy to understand, and loan terms vary little from lender to lender. While they protect the consumer from sudden and potentially significant increases in monthly mortgage payments if interest rates rise, qualifying for a loan when interest rates are high may make payments less affordable.

  • What is a conforming loan?

    A conforming loan is a mortgage whose underlying terms and conditions meet the funding criteria of government-sponsored enterprises Fannie Mae and Freddie Mac. The value of the loan must fall under a certain limit, known as the conforming loan limit, set by the Federal Housing Finance Agency (FHFA). For 2020, this baseline limit is $510,400. In certain high-cost markets, such as New York or San Francisco, the limit is $765,600. These loans often offer consumers more affordable interest rates.

  • What is a jumbo mortgage loan?

    A jumbo loan has a higher loan amount than the conforming loan limits set by the Federal Housing Finance Agency (FHFA). The 2020 loan limit on conforming loans is $510,400 in most areas and $765,600 in high-cost areas, such as New York or San Francisco. Because these loans may present a higher risk to lenders, they typically have stricter qualification requirements and higher interest rates than typical, conforming loans.

  • What is a refinance?

    A refinance is a mortgage loan secured by residential real estate that is used to pay off a homeowner’s existing mortgage, and/or to access the equity they have in their property. Homeowners choose to refinance for a number of reasons, including to: reduce their interest rate, reduce their risk with a fixed-rate loan instead of a variable-rate loan, reduce their mortgage term, access cash if they have equity in the house, and/or improve cash flow by lowering their payments.

  • What is a cash-out refinance?

    A cash-out refinance replaces an existing mortgage with a new loan with a higher balance, and sometimes with more favorable terms than a consumer’s current loan. The difference between the two loans is distributed to the homeowner as cash. Homeowners often use a cash-out refi to pay off credit card debt, college tuition, self-employment costs, home improvements, and/or unexpected expenses.

  • What is home equity?

    Home equity represents the difference between a home’s fair-market value and the outstanding balance of all liens on the property. As a consumer makes payments against their mortgage balance, their equity in the property increases. Equity can be acquired from two sources: A downpayment and the principal portion of any payments made against the mortgage; and an increase in the property value.

  • What is a home equity line of credit (HELOC)?

    A home equity line of credit (HELOC) is a line of credit that allows a homeowner to borrow against their home equity. HELOCs often have a variable interest rate that changes over time, so payments may not be the same from month to month.

  • What is a foreclosure?

    When a homeowner defaults on their mortgage payments, a lender may attempt to recover the balance of the loan by forcing the sale of the asset (i.e., the home) used as collateral for the loan. The foreclosure process differs by local jurisdiction. Some areas of the country execute the process via “judicial foreclosure,” which involves the sale of a mortgaged property via court supervision. Other areas foreclose via a “nonjudicial foreclosure,” in which the sale of the property by the mortgage holder is conducted without court supervision.

    A few states conduct the process via “strict foreclosure,” where a court orders the defaulted mortgagor to pay the mortgage within a specified period of time, and if they fail to do so, the mortgage holder gains title to the property with no obligation to sell it. In all of these cases, when the foreclosure process is complete, the lender can sell the property and keep the proceeds to pay off its mortgage and any legal costs.

  • What is a guarantee fee (g-fee)?

    When government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac acquire single-family mortgage loans, they charge lenders a guarantee fee, or g-fee, to cover projected credit losses from customer defaults over the life of the loan, as well as administrative costs and a return on capital.

    There are two types of g-fees: An upfront fee, which is a one-time payment made by lenders when they deliver fees to the GSEs; and an ongoing fee, which is collected each month over the life of the loan. Both types are ultimately passed by lenders onto their customers in the form of a slightly higher interest rate on the mortgage.

  • What is the Mortgage Industry Standards Maintenance Organization (MISMO)?

    A nonprofit subsidiary of the Mortgage Bankers Association (MBA) and the leading technology standards development body for residential and commercial real estate financing. MISMO promotes data consistency throughout the broader industry, reduces processing costs, increases transparency, and boosts investor confidence in mortgages as an asset class. MISMO developed minimum standards for how remote online notarization (RON) transactions should be conducted, and MISMO’s RON standards are accepted by the GSEs and have been widely adopted by state legislatures.

  • What is the Real Estate Settlement Procedures Act (RESPA)?

    In the 1970s, the U.S. Congress became concerned that mortgage loan applicants were being overcharged for settlement services. A 1972 study by HUD and the Administrator of Veterans Affairs (VA) found that most consumers were not shopping around for their settlement service providers. Instead, their real estate brokers, closing attorneys, and other professionals were referring them to lenders, title insurance companies, and other providers. Of particular concern to Congress was the report’s finding that there was little price competition for those services, and consumers were being overcharged by companies that were engaged in systematic kickbacks and referral-fee schemes.

    The HUD/VA report requested that Congress give the agencies the power to establish maximum allowable settlement charges and to require the use of uniform consumer disclosures, but this recommendation was not favored within the real estate industry. Instead, Congress in 1974 passed the Real Estate Settlement Procedures Act (RESPA), a federal law that gave consumers more advance disclosure of their settlement costs and cracked down on the practice of kickbacks and referral fees. RESPA is codified at Title 12, Chapter 27 of the United States Code, 12 U.S.C. §§2601–2617. The regulations implementing the statute are known as “Regulation X.”

    RESPA applies to federally related mortgage loans that are secured by a mortgage loan on a one- to four-family residential property. It does not apply to commercial real estate transactions. The act required certain disclosures to be given to consumers at specific times during the mortgage transaction, including the Good Faith Estimate of Settlement Costs (GFE); the Servicing Disclosure Statement; the Affiliated Business Arrangement Disclosure; the HUD-1 Settlement Statement; and the Escrow Account Operation and Disclosures form.

    The portion of the RESPA statute of most concern to the real estate industry is found in Section 8, which prohibits kickbacks, referral fees, and fee-splitting among settlement service providers for services that were not actually rendered, or that were rendered at lower than fair market value.

    Each section of the statute has its own penalties for violations. RESPA violations can result in federal district court actions or administrative adjudication proceedings. The statute also provides for a private right of action for consumers, who may bring civil and class action lawsuits.

    From the time RESPA was enacted in 1974 until 2011, the U.S. Department of Housing and Urban Development (HUD) administered and enforced the act. In July 2011, those duties transferred to the Consumer Financial Protection Bureau (CFPB), a federal agency created in 2010 by the passage of the Dodd–Frank Wall Street Reform and Consumer Protection Act. Both regulators and the federal courts have faced industry criticism for failing to provide sufficient compliance guidance or for uneven or conflicting interpretations of the statute.

    Most states also have laws similar to RESPA on their books, some of which are stricter than the federal statute. These states have the authority to enforce and prosecute their own RESPA laws, in addition to federal actions.

  • What is the Truth in Lending Act (TILA)?

    The Truth in Lending Act is a 1968 federal law designed to promote better understanding of consumer credit by requiring disclosures about credit terms and costs. The law requires lenders to disclose credit terms in an easily understood manner so consumers can comparison-shop for interest rates and loan conditions. Notably, the law introduced the annual percentage rate (APR) calculation mandated for all consumer lenders.

    Under TILA, lenders must provide a disclosure statement that includes information about the amount of the loan, the APR, finance charges, a payment schedule, and the total repayment amount due over the lifetime of a loan.

    From 1968 to 2011, the Federal Reserve Board had the authority to implement TILA. After 2011, that responsibility was transferred to the Consumer Financial Protection Bureau (CFPB).

    The law is codified at 15 U.S.C. Ch. 41 §1601. Its implementing regulations are known as “Regulation Z.”

  • Are there jurisdictional differences within the United States that affect title and escrow?

    Yes. Title insurance is largely a function of state real property law, which varies across the country. While there are some industry stakeholders that dictate national standards (i.e., Fannie Mae, the Consumer Financial Protection Bureau, the American Land Title Association, etc.), those standards often allow for regional differences. For example, state laws may dictate how fees are split between parties, how much a title insurance policy costs, or how much of a title premium a title insurance underwriter may give to the issuing title agent.

  • What is an "attorney state"?

    An attorney state is one that requires an attorney to be present at a real estate closing or refinance. In these states, a non-attorney who conducts a closing or performs certain closing functions is considered to be engaging in the unauthorized practice of law (UPL).

    The UPL concept – which is a bit controversial in the title insurance industry and has been the subject of many legal challenges – originates in the early days of American settlement, when purchasing property was considered risky and complex, requiring an attorney to determine the legal validity of liens and other transactional details.

    States that mandate the physical presence of an attorney, or restrict other types of closing duties to attorneys, include: Alabama, Connecticut, Delaware, District of Columbia, Florida, Georgia, Kansas, Kentucky, Maine, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, New York, North Dakota, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, and West Virginia.

    These states differ in how they define UPL. While some states simply require the physical presence of an attorney at closings, others prohibit laypersons from drafting legal documents for a closing or rendering legal advice in matters arising during the closing.

  • What is nonpublic personal information (NPI)?

    As defined by the Gramm-Leach-Bliley Act Privacy Rule, any personally identifiable financial information that a financial institution collects about an individual in connection with providing a financial product or service, unless that information is otherwise publicly available. NPI includes: Any information an individual provides to get a financial product or service (e.g., name, address, income, Social Security Number, or other information on an application); any information a financial institution collects about an individual from a transaction involving financial product(s) or service(s) (e.g., the fact that an individual is a consumer or customer, account numbers, payment history, loan or deposit balances, and credit or debit card purchases); or any information obtained about an individual in connection with providing a financial product or service (e.g., information from court records or from a consumer report). The Privacy Rule restricts a business’ use and disclosure of NPI, and requires them to give consumers written notice describing their privacy policies and practices.

  • What is the Consumer Financial Protection Bureau (CFPB)?

    The Consumer Financial Protection Bureau (CFPB) is a federal agency responsible for consumer protection in the financial sector. Its jurisdiction includes banks, credit unions, securities firms, payday lenders, mortgage lenders and servicers, foreclosure relief services, debt collectors, and other financial companies operating in the United States.

    The bureau’s creation was authorized by the Dodd-Frank Act’s passage in 2010 as a legislative response to the financial crisis and recession of 2008. It writes and enforces rules for financial institutions, examines bank and non-bank financial institutions, monitors and reports on markets, and collects and tracks consumer complaints. Mortgages are a top priority for the CFPB, and in 2012, it issued the TILA-RESPA Integrated Disclosure (TRID) rule, a sweeping reform of the manner in which mortgage closings are conducted. It also administers and enforces the Real Estate Settlement Procedures Act (RESPA).

  • What is the Department of Housing and Urban Development (HUD)?

    The Department of Housing and Urban Development (HUD) is a cabinet department in the executive branch of the U.S. federal government. The U.S. Congress established the department in 1965 to develop and execute housing policies.

    From the creation of the Real Estate Settlement Procedures Act (RESPA) in 1974 until 2011, HUD administered and enforced RESPA, making it the real estate, mortgage, title, and settlement services industries’ chief federal regulator. That responsibility was transferred to the Consumer Financial Protection Bureau (CFPB) with the passage of the Dodd-Frank Act.

  • What is the Federal Housing Finance Agency (FHFA)?

    The Federal Housing Finance Agency (FHFA) is an independent federal agency charged with regulatory oversight of Fannie Mae, Freddie Mac, and the 11 federal home loan banks.

    Created in 2008 as the successor regulatory agency of the Federal Housing Finance Board (FHFB), the Office of Federal Housing Enterprise Oversight (OFHEO), and the Department of Housing and Urban Development (HUD) government-sponsored enterprise mission team, the FHFA has expanded legal and regulatory authority, including the ability to place government sponsored enterprises (GSEs) into receivership or conservatorship.

    The FHFA has had conservatorship over Fannie Mae and Freddie Mac since 2008. The FHFA is not to be confused with the Federal Housing Administration (FHA), which largely provides mortgage insurance.

  • What are government-sponsored enterprises (GSEs)?

    A type of financial services corporation created by the U.S. Congress, intended to enhance the flow of credit to targeted sectors of the economy – making them more efficient and transparent – and to reduce the risk to investors and other suppliers of capital.

  • What is Fannie Mae?

    The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a government-sponsored enterprise (GSE) founded during the Great Depression to expand the secondary mortgage market by securitizing mortgage loans in the form of mortgage-backed securities, allowing lenders to reinvest their assets into additional lending.

  • What is end-to-end encryption?

    A system of communication where only the communicating users can read the messages, to prevent data being read or secretly modified, other than by the true sender and recipient. Messages are encrypted by the sender of a given message, but third parties do not have a means to decrypt them. The recipient retrieves the encrypted data and decrypts it themselves. (See Digital Closings Clear Final Hurdles)

  • What is an audit trail?

    Records of a transaction or agreement, including initial contact with a customer and all subsequent actions, such as payment, signatures, and the delivery of products and services. For notaries, an audit trail is useful for recovering lost transactions, maintaining security, responding to customer complaints and inquiries, and addressing tax or legal issues. (See Digital Closings Clear Final Hurdles)

  • What is middleware?

    Middleware is software that lies between an operating system (as a hidden translation layer) and the applications running on it. It enables communication and data management for distributed applications. In the context of a mortgage transaction, middleware can connect a loan origination system (LOS) to a title order processing system.

  • What is an application programming interface (API)?

    An API is a software-to-software interface that allows users of disparate software programs to communicate and interact with each other. In the context of a mortgage transaction, APIs allow mortgage professionals to seamlessly order fulfillment services from various service providers or share data across platforms. Users remain in one system, providing improved transactional efficiency, data quality, regulatory compliance, and user experience.

  • What is a traditional title closing?

    A paper-and-ink signing ceremony, conducted at a table with a notary and signers in the same room; the type of closing most commonly seen in the American homebuying process for decades. (See Digital Closings Clear Final Hurdles)

  • What is the Uniform Electronic Transactions Act (UETA)?

    The first national effort to provide uniform rules to govern electronic commerce transactions by validating eDocuments and eSignatures and ensuring they are legally enforceable, the same as paper documents with wet signatures. Promulgated by the Uniform Law Commission (ULC) in 1999 and adopted on a state-by-state basis. (See Digital Closings Clear Final Hurdles)

  • What are electronic recordings (eRecordings)?

    The recording of real property instruments in county records offices in an electronic manner. Across the country, the ability of a local recording office to eRecord depends on the level of funding available for trained personnel, equipment, and other resources; the resolve of the leaders of these offices (sometimes political in nature); and the economic, business, and social priorities of the locality. (See Digital Closings Clear Final Hurdles)

  • What is the Uniform Real Property Electronic Recording Act (URPERA)?

    An act promulgated by the Uniform Law Commission (ULC) in 2004 to give county clerks and recorders the legal authority to prepare for eRecording of real property instruments. URPERA established that any requirement for a paper document’s originality is satisfied by an eDocument and eSignature, provided the standards a recording office must follow and what it must do to make eRecording effective, and created a board that sets statewide standards that must be implemented in every office. (See Digital Closings Clear Final Hurdles)

  • What is the Uniform Law Commission (ULC)?

    Founded as a nonprofit, unincorporated association, the ULC is a consortium350 practicing lawyers, judges, legislators, and law professors. The ULC drafts uniform laws to address areas in state law where uniformity is needed. Also known as the National Conference of Commissioners on Uniform State Laws (NCCUSL). (See Digital Closings Clear Final Hurdles)

  • What is the Property Records Industry Association (PRIA)?

    A national consortium that identifies opportunities for collaboration among industry stakeholders, develops recommendations for standards and best practices, and promotes the adoption of standards and practices. PRIA also acts as a clearinghouse for property record-related information, and educates the public and industry stakeholders about the property records industry. (See Digital Closings Clear Final Hurdles)

  • What is a wet signature?

    The act of physically signing a piece of paper, called a ‘wet’ signature because an individual signs with a pen that uses liquid ink. Some state laws, local recording jurisdictions, and individual companies require wet signatures on closing documents, but in 2000, the Electronic Signatures in Global and National Commerce Act (ESIGN) established that wet signatures and electronic signatures hold the same legal weight. (See Digital Closings Clear Final Hurdles)

  • What are electronic signatures (eSignatures)?

    Broadly defined as any electronic sound, symbol, or process attached to or associated with a document that an individual uses to express their intent to sign a document. In real estate, eSignatures are commonly used to sign mortgage forms, closing disclosures, seller’s affidavits and other closing documents. (See Digital Closings Clear Final Hurdles)

  • What is the Electronic Signatures in Global and National Commerce Act (ESIGN)?

    A federal law passed by the U.S. Congress in June 2000 to facilitate the use of electronic records and electronic signatures in interstate and foreign commerce by ensuring their validity and legal effect. Its general intent is that a contract or signature “may not be denied legal effect, validity or enforceability solely because it is in electronic form.” It also allows for state preemption of the federal law, as long as states provide at least the same level of security for eDocuments and eSignatures. Together with the Uniform Electronic Transactions Act (UETA), ESIGN provided a national standard of recognition for eSignatures and eRecords. (See Digital Closings Clear Final Hurdles)

  • What is electronic notarization (eNotarization):

    A notarized transaction in which documents are notarized electronically. Primarily seen in two forms: An in-person eNotary transaction, where the notary and signer are present in the same location, the notary identifies the signer face-to-face, and the signer executes documents with an eSignature; or a remote online notarization (RON), where the notary and signer are located in different places, but communicate via real-time, audio/visual (A/V) communication technology, and the signer effects an eSignature. (See Digital Closings Clear Final Hurdles)

  • What is remote online notarization (RON)?

    The use of audio/visual technology to complete a notarial act when the principal is not in the same physical location as the notary public. Each state enacts laws governing the manner in which RON transactions are conducted, and these laws are usually based on standards set forth by the Mortgage Industry Standards Maintenance Organization (MISMO) and the Revised Uniform Law on Notarial Acts (RULONA). Only about half of the states in the country had adopted RON laws and regulations by early 2020, but the COVID-19 crisis motivated states to take action to enable real estate closings to continue with minimal human contact. (See Tracking RON: From RULONA to Corona)

  • What is the Revised Uniform Law on Notarial Acts (RULONA)?

    An act promulgated by the Uniform Law Commission (ULC) in 2010 to provide a consistent framework for notarial acts, including taking an acknowledgement, administering an oath or affirmation, witnessing or attesting a signature and certifying a copy of a document. RULONA allowed for the performance of notarial acts with respect to eRecords and eSignatures, but did not address remote/online transactions until revisions of the act were made in 2018. At the beginning of 2020, 23 states had enacted laws based on RULONA. (See Tracking RON: From RULONA to Corona)

  • What is RULONA Section 14A?

    Revisions made in 2018 to the Revised Uniform Law on Notarial Acts (RULONA) to suggest how remote online notarization (RON) should be conducted. These provisions enabled RON without geographic limits on the signer’s location, if the notary uses ‘communication technology’ to notarize documents, defined as ‘an electronic device or process that allows a notary public and a remotely located individual to communicate simultaneously by sight and sound.’ It requires the notary public signature block to state, ‘This notarial act involved the use of communication technology.’ Notaries must identify signers using a combination of identity-proofing methods, including knowledge-based authentication (KBA) questions, credential analysis, and biometric technology. Finally, Section 14A requires an audio/visual recording of the transaction to be maintained for at least 10 years. These provisions helped propel industry adoption of RON, the last eClosing component to see widespread implementation. (See Digital Closings Clear Final Hurdles)

  • What is the Securing and Enabling Commerce Using Remote and Electronic (SECURE) Notarization Act of 2020?

    Proposed federal legislation that aimed to permit immediate nationwide use of remote online notarization (RON), with minimum standards, and provide certainty for the interstate recognition of RON. The bill was supported by the American Land Title Association (ALTA), the Mortgage Bankers Association (MBA) and the National Association of Realtors (NAR). The bipartisan measure was introduced in the U.S. Senate as Senate Bill 3533 and in the House of Representatives as H.R. 6364. It did not make it to a full vote. (See Digital Closings Clear Final Hurdles)

  • What is a paperless transaction?

    A real estate transaction that involves no paper documents. Paperless real estate transactions offer several benefits: Convenience for buyers and sellers, reduced printing and storage costs, improved efficiency and turnaround time, and easier record retention. (See Digital Closings Clear Final Hurdles)

  • What is a hybrid closing?

    One step up from a traditional closing, a hybrid transaction is conducted at a table with the notary and signers in the same room, but some of the documents are signed on paper with ink, and some documents are signed electronically. (See Digital Closings Clear Final Hurdles)

  • What is in-person electronic notarization (IPEN)?

    A type of real estate closing where electronic documents are signed on an electronic device, but the closing still takes place at a table with the notary and signers in the same room. (See Digital Closings Clear Final Hurdles)

  • What is credential analysis?

    A process by which a principal’s government-issued identification card is validated. The process requires a third party to use technology to review the security features on an ID and confirm it is not fraudulent. As part of the remote online notarization process, the third party provides the result of the authenticity test to the notary, enabling the notary to visually compare the credentials used with the principal, who personally appears before the notary via audio/visual technology. (See Digital Closings Clear Final Hurdles)

  • What is biometric technology?

    The use of technology to identify a person based on some aspect of their biology, such as fingerprints, palm prints, vein patterns, DNA profile, and facial, iris, gait, or vocal recognition. (See Digital Closings Clear Final Hurdles)

  • What is tamper-evident technology?

    A layer of security in electronically notarized documents that provides evidence of any changes made to an electronic document after it was notarized. Notaries public may use one or more tamper-evident technologies to perform notarial acts with respect to electronic records. For example, Public Key Infrastructure (PKI) technology can be used to create a numeric digest or “thumbprint” of an electronic document that can reveal any subsequent tampering or corruption of the document. (See Digital Closings Clear Final Hurdles)

  • What is communication technology?

    Defined by Section 14A of the Revised Uniform Law on Notarial Acts (RULONA) in 2018 as: “Any means or process that allows a notary public and a remotely located individual to communicate with each other simultaneously.” (See Digital Closings Clear Final Hurdles)

  • What is a drive-thru closing?

    An emergency type of real estate closing, developed during the COVID-19 crisis to comply with self-isolation measures, in which homebuyers sign closing documents from inside their cars while the title agent maintains a safe distance, wearing appropriate personal protective equipment, such as gloves and a face mask. (See Digital Closings Clear Final Hurdles)

  • What is a service level agreement (SLA)?

    A service level agreement (SLA) is a commitment between a service provider and a client, either in a legally binding or informal contract, which contains well-defined components such as the type of service to be provided; the customer’s desired performance levels and goals; supervision and monitoring of reporting; and response and resolution timeframes. SLAs usually contain numerous performance metrics with corresponding service-level objectives, which are tracked and shared with the customer to ensure that services are being provided as agreed upon. (See Lender Onboarding Process Lays Foundation for Customer Success)

  • What is a customer satisfaction (CSAT) score, and why is it important in the mortgage, title, real estate, and settlement services industries?

    Customer satisfaction (CSAT) is a survey methodology that measures customer satisfaction with a business, purchase, or transaction. A CSAT score is calculated by asking a question and prompting the customer to rate their answer on a corresponding Likert scale. CSAT scores vary by industry and product, but a good score typically falls between 75 percent and 85 percent, meaning that three out of four customers gave the surveyor a positive score, instead of a neutral or negative score. Maximizing satisfaction of the customer journey can yield significant benefits, including attracting repeat customers or earning new customers via good reputation, happier employees, and higher profits. Conversely, negative CSAT scores can result in fewer repeat customers and new customers, unhappy employees who deal with customer complaints, and ultimately, a less profitable business. (See The 411 on CSAT in the Residential Real Estate Mortgage Industry)