Common Title Insurance Vesting Issues Lenders Need to Know

Interest in a property is called vesting or “vested interest”. Vesting can be complicated if there is a refinance and/or change in ownership, or if multiple homeowners have a vested interest in the property. To clarify how to go about vesting a property, take a look at this overview of title insurance vesting issues lenders may encounter.

Single ownership and multiple owners change title insurance vesting formats

Vesting Changes during Refinance

When refinancing a property, changes will need to be made to the title “vesting” if applicable. This means that a title agent is needed to conduct an investigation into the legal description and true owners of the property in order to confirm the proper vesting/ownership on the title.

If the title has changed since the previous loan, then, before a refinance can take place, the title agent will need to confirm current vesting, and the refinance documents will have to be redrawn to match that new current vesting. The lender does not change vesting, the vesting causes the lender to redraft documents to be sure they get a correct interest in the property used as collateral for their loan.

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Matching Contract, Deed, and Mortgage

After current ownership for a property is confirmed, the vesting of the property will be changed to match the sales contract, the proposed new deed, and new mortgage from the loan application. A title insurance agent must conduct a title search and assure that all details are correct before vesting can be changed to match the intent of the parties.

Joint Tenancy

In the case of joint tenancy, there is more than one owner and the ownership of the property is divided equally among the joint owners. Upon the death of one of these joint tenants, the deceased joint tenant’s right to the property is transferred to the remaining joint tenants. Therefore, in joint tenancy situations, ownership of the property cannot be transferred to an heir.

It is possible for a joint tenant to sell his or her interest in a property, however that severs the joint tenancy and the remaining parties will then hold title as tenants in common.

Tenancy in Common

Tenancy in common is a way to divide unequal vested interests (such as 40 percent and 60 percent) among multiple owners, although interest in the property can still be equal. In addition, unlike joint tenancy where all vested interest are equal and you cannot leave your share to an heir, a tenancy in common situation allows for tenants to will their vested interest in the property to his or her heir.

Upon the death of a tenancy in common property owner, the property will need to undergo a probate process for the heir to claim their vested interest.

Community Property

A community property exists in states where “community property” is recognized between husband and wife. It is used solely for this purpose, and community property can be transferred in one of two ways in the event of the death of one or both owners.

Right of Survivorship – Only offered in a select number of states, such as California, Nevada, Arizona, Alaska, Texas, and Wisconsin. In the event of the death of one spouse, Right of Survivorship transfers the property automatically to the surviving spouse.

Probate Required – In all other states that do not offer “Right of Survivorship”, the property must go through a probate process in the event of the death of a spouse.

Living Trust

A living trust is a set of instructions that outlines what to do in the event of the death of the vested owner. It is part of your living trust estate planning tool that outlines instructions and bypasses the probate process. The property must be transferred into a living trust in order for this benefit to take effect.

Need a way to overcome common title insurance vesting issues?

You need a title insurance company with expertise in conducting title searches and providing documents on time. Bay National Title Company is dedicated to helping you achieve a better closing experience. Ask us about our Same Day Closing Disclosures today!

SOURCES:

Taking Title or Vesting: What is Vesting?

Steps Needed to Refinance Mortgage Loan

Choosing a Vesting (Requirement for All Deeds)