When you purchase a home, you are purchasing the title to the property – which is the right to occupy and use the space. That title may be contested based upon past rights; and claims can be asserted by those who feel they still have ownership of the property. These types of claims can infringe upon your purchase of the property and can cause you to lose money or even the property!
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What is title insurance, and why do you need it? On this page, we have listed the answers to these and other commonly asked questions.
We suggest that you read this information to better understand the value of title insurance in protecting your homeownership. Also, the general real estate information will help make the home-buying process much smoother.
Please contact us if you have additional questions, or if you would like more detailed information about any of the FAQs below.
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What is a title?
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What is title insurance?Title insurance is an insurance policy that protects the homeowner against future loss should the title condition be any different than when the policy was written.
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Why do you need title insurance?A home is one of the biggest investments that we make in our lives. Title insurance protects against the loss of value in this investment from hazards and defects that may exist in the title. These hazards can include fraud, forged signatures on deeds, unknown property heirs, liens, and documentation errors. If you were uninsured and your right to title is challenged, you could lose a significant amount of money on legal fees defending yourself, or you could even lose your home. Your mortgage lender will require a policy of title insurance for the loan to protect their interest in the value of your property, and a homeowner should purchase an owner’s policy for the very same reason.
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How does title insurance differ from other types of insurance?Most insurance policies protect against losses that arise from potential future events. The primary purpose of title insurance is to prevent losses from defects in title arising out of past events.
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Is a homeowner required to have title insurance?Yes and no. While a lender will usually require a loan policy of title insurance, the purchaser can choose what type of owner’s protection, if any, to use regarding their title. However, without an owner’s policy, the homeowner will not be protected against hidden title hazards, reimbursed for legal expenses for defense, or claims that affect the value of the property.
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How does title insurance protect against hazards?An owner’s policy of title insurance requires the insurance provider to pay for defending against any lawsuit attacking your title as insured and will either clear up title problems or pay the insured’s losses. For a one-time premium that is generally paid at closing, an owner’s title insurance policy remains in effect as long as you, or your heirs, retain an interest in the property.
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Why does your lender require title insurance during refinancing?From the lender’s standpoint, a refinanced mortgage is a brand-new mortgage – complete with the same risks that may have been present originally. During the refinance process, your original mortgage is paid off – and your existing lender’s title insurance policy is rendered invalid. However, if you purchased an owner’s policy of title insurance at your original closing – that policy will remain in effect if you or your heirs still own the property.
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How much does title insurance cost?Less than you think. Charges vary in different sections of the country, but the cost of title insurance (including the search, examination, and related services) amounts to about one percent or less of the property’s cost. And unlike other insurance premiums, which must be paid annually, a title insurance premium is a one-time payment , usually at settlement.
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What is the difference between title insurance & howeowner's insurance?Homeowner’s insurance typically provides protection against theft, accidental damage, or natural disaster. While these types of loss can certainly be substantial, losses from a defective title could be devastating. A home destroyed by fire can be rebuilt; but if the title to the land fails, without title insurance, the homeowner could lose the right to inhabit the house and the land it occupies.
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How long does title insurance coverage last?The lender’s policy of title insurance lasts until the mortgage is paid in full. However, the owner’s policy of title insurance lasts for as long as the homeowner or their heirs retain an interest in the property. Unlike other types of insurance, a title policy never goes out of effect. Even if the insured sells the property and goes out of title, the policy insuring him still is in effect via the deed he conveys the property with.
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Who is protected by the different types of title insurance?Only the lender is covered by the Mortgagee’s Title Policy; the Owner’s Title Policy protects both the buyer and the seller.
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How does title insurance protect a homeowner's heirs?A title insurance policy provides coverage from the time of its effective date back to the origin of the title. After the property has passed to a homeowner’s heirs, if any defect prior to the policy should arise, the title insurance company would defend the title for the heirs as it would for the homeowner.
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Are there any general exceptions to what is covered in a title policy?Yes. Easements, deed restrictions, zoning requirements, mortgage liens, and certain other categories of limitations on the use of property are specifically exempted, or otherwise not covered. Consult with your title insurance agent for full information on policy exemptions.
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Where can a title insurance policy be obtained?A homebuyer can obtain title insurance from any licensed title insurance company. When choosing a title insurer, it is important to look for a company with expertise and experience, as well as the financial strength to provide protection should a claim arise. A real estate broker or attorney can help you find a good title insurance company.
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What is a title search?A title search is a detailed examination of a property’s historical records, including deeds, court records, and many other documents. The purpose of this search is to verify the seller’s right to transfer ownership, and to discover any claims, defects, and other rights or burdens on the property.
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What kind of problems can a title search reveal?A title search can show title defects and liens, as well as other encumbrances and restrictions. These include any unpaid taxes, unsatisfied mortgages, judgments against the seller and restrictions limiting the use of the land.
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The Current owner has title insurance. Why do I need another title search?A title policy ensuring the seller does not protect the buyer. Also, many things could have happened to the land since that owner’s policy was issued. Your seller could have a mortgage, a home equity loan, judgments, or unpaid taxes that would not be covered in the seller’s title policy.
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What is a title defect or encumbrance?A title defect occurs when information is missing from a title, such as the existence of a previous owner’s undisclosed heir who could then make a claim on the land. An encumbrance is a claim made upon the land by a party other than the landowner. For instance, a local utility company may have an easement for utilities run to a house. When a potential homeowner is borrowing money, the lender will require the title to be cleared of any outstanding defects or encumbrances before the land is transferred and the loan approved.
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What is a title opinion?A title opinion is the judgment of a trained professional – often an attorney – based on a search of public records. A title opinion only protects against loss related to the oversight of the individual making the opinion, not against hidden hazards.
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Why is transferring title to real estate different from transferring title to other items (i.e., car)?Since various rights to the land (such as mineral, air or utility rights) may have been acquired by others, it is necessary to determine whether any rights are outstanding to ensure transfer of a clear title.
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What is escrow?Escrow enables the buyer and the seller to transact business with each other through a neutral party, thereby minimizing risk. In the escrow, all parties involved give their instructions to the neutral intermediary, the “escrow holder,” who ensures that no funds or property change hands until all instructions have been carried to completion.
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Who chooses the escrow?The selection of the escrow holder is normally done with an agreement between principals complying with the contract purchase agreement between said principals.
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Who can handle an escrow?The escrow holder may be any disinterested third party, although some states require that certain escrow holders be licensed. Escrow officers with established firms are experienced with and trained in real estate procedures, title insurance, taxes, deeds, and insurance.
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What are escrow instructions?The escrow instructions are written documents, signed by the parties giving them, which direct the escrow officer in the specific steps to be completed so the escrow can be closed. Since the escrow holder can only follow the instructions as stated, it is extremely important the escrow instructions be worded carefully and clearly so that no one will have difficulty understanding them at a later date.
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What are the different types of escrows?1. Residential: single family/condominium/1-4 multi-family 2. Commercial: retail/industrial/office/hotels 3. Subdivision: tracts/condo conversions 4. Apartment building (over four units) 5. Leasehold Also: sale of notes and trust deeds, new loans, sub-escrows, tax deferred exchanges and business opportunities.
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What is a closing?A closing, which is also known as a “settlement” or “escrow,” is the event where the title to a property is transferred from seller to buyer. Closing is typically held in an office, such as that of an attorney, title agent, or title insurance company, and involves the completion of all the necessary paperwork to finalize the buyer-seller agreement. In addition, all financial issues are settled at closing – such as closing costs – and once the title is successfully transferred, the necessary documents are prepared, signed, and filed with local authorities.
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What are closing costs?Closing costs are all costs required to close a real estate transaction. They can include (but are not limited to) surveying fees, property taxes, title insurance, attorney fees, agent fees, points, loan origination fees, primary mortgage insurance (PMI), and the balance of your down payment. Prior to closing, you should review your final closing statement or HUD-1 Statement (whichever is in use) to ensure that all the calculations are correct and that you have been given all the credit for deposits and other agreed upon buyer and seller credits. Also, recheck all lender, title, and escrow fees to make sure they are accurate.
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What will happen during the closing process? *1. You might do a final walk–through of the home. 2. You will go to the closing location and show your picture ID to the settlement agent. 3. You will present your paid homeowner’s insurance policy, or proof that the premium has been paid. 4. Your settlement agent will review the closing statement or HUD–1 statement with you, showing all items for which, you have paid. 5. You’ll get inspection reports and warranties. 6. You’ll sign the mortgage, agreeing that if you don’t make payments to the lender as agreed, the lender is entitled to sell your property and apply the sale price against the amount you owe. 7. You’ll sign a mortgage note, which is your promise to repay the loan. 8. You’ll typically be given the title to the house in the form of a deed, signed by the sellers. 9. You will be asked to sign a number of other documents required by your lender. 10. The deed and mortgage will be recorded in the local courthouse or county recorder’s office, sometimes called the Registry of Deeds. 11. You’ll get the keys to your house! Source: www.KnowYourClosing.com
