10 Things Everyone Needs To Know About Title Insurance
“More than one-third of all title searches reveal a title problem”
Title insurance offers absolutely essential protection for home buyers. So what is it? How does it work? Where should you get your title insurance from? And how can you get free services out of your title company?
Title insurance is one of the most important parts of buying a home. This makes it one of the most important parts of life for most individuals. Yet, it is also all too often underestimated, and misunderstood.
The next few moments and pages could be the best time you’ve invested all year. It could literally save you hundreds of thousands of dollars, your home, and keep you out of bankruptcy.
Here are 10 things everyone needs to know about title insurance…
1. What is Title Insurance?
Title insurance is insurance covering the loss of an interest in a property due to legal issues.
Most individuals are already familiar with having insurance. Homeowners’ insurance covers against loss of property due to fires, and flood insurance due to floods. Even those that have never purchased a home before are probably familiar with renters’ insurance, auto insurance, life insurance, health insurance, and even mobile phone insurance.
The concept is the same. Only in this case the title and ownership of a property is being protected. Consider how much your home, or future home, or investment properties are worth, and it is obvious this is the most valuable insurance most will ever benefit from having in their lifetimes. Fortunately, it costs barely a fraction of many of the other types of insurance. Sometimes the home seller even pays for your insurance!
Title insurance protects the right to ownership from errors in title searches and paperwork, defective titles, encumbrances and encroachments, other claims to ownership, lien claims, fraud, lawsuits, and the right to enjoy property.
Without it, everything can be lost.
2. Why Does Title Insurance Exist?
The first title insurance company was started on March 28th, 1876. The need for insurance came from a landmark 1868 legal case in which a lien was hidden from a new buyer in Pennsylvania.
In many countries a centralized, government run land registration system handles all title records and determines ownership. The fractured and fragmented recording system and laws have meant that without title insurance it is really on the buyer to figure out if they are buying from the legitimate seller, how much is owed on the property, and are generally stuck if anything is missed, or aggressive moves are made against the ownership of their property. Unless they have insurance.
3. The Two Types of Title Insurance
There are actually two main types of title insurance policy.
a. Lender’s Policy
A ‘lender’s policy’ or ‘loan policy’ is title insurance which covers a mortgage lender’s capital when making a loan to a home buyer. This ensures their money won’t be lost due to any title issues. A lender’s policy is generally mandatory whenever a home loan is taken out. However, this provides absolutely no protection for the borrower or owner.
b. Owner’s Policy
The owner’s policy is the insurance which actually provides protection for the buyer and owner of the home.
4. Title Insurance vs Title Searches
Some real estate investors have sometimes risked buying homes for cash only based on title searches, and have skimped out on obtaining insurance. All too often this has had catastrophic results. Issues after the closing can mean all the money invested, and any additional equity in the home is essentially vaporized overnight, without insurance.
Title searches are performed by title companies in the process of underwriting policies, but are not without a margin of error, in addition to the fact that many title problems arise from claims based on instruments which haven’t been recorded. In fact, Wikipedia reports that the overwhelming percentage of losses paid out by insurers are a result of errors and emissions in the title examining process.
Title searches are a critical part of the process, but alone offer zero protection for homeowners.
5. Common Title Issues
Seven common title threats and issues include:
a. Overlooked liens, mortgages, and claims to ownership prior to closing
b. Past due property taxes
c. Mechanics liens from unpaid contractor work
d. Code violations
e. HOA dues
f. Encroachments, encumbrances, and easements
g. Defective and unmarketable titles
The recent financial and foreclosure crises have wreaked havoc on the title of US properties. The robo-signing scandal led by American banks affected hundreds of thousands of homes, with a huge percentage of those in Florida.
A title company is a proactive partner in squashing these threats prior to closing, at the closing table via verifying the identities of the seller/s, and afterwards through ongoing insurance, and legal defense.
6. How Much Does Title Insurance Cost?
Title insurance premiums vary depending on the amount of the insurance. Premiums are based upon the purchase price of a home. Buyers may be eligible for substantial discounts when simultaneously obtaining and owner’s and lender’s policy. Insurance rates are regulated by state government to ensure they are not excessive, inadequate or discriminatory. In addition to the premium, title companies pass through costs of searches, examining titles, and closings to borrowers. These are all one time investments.
Who pays for title insurance generally follows the custom of the county the property is in. It may be the buyer or seller. As with everything else in real estate this can also be negotiated as part of the real estate purchase and sales contract agreement.
7. When to get Title Insurance
Even though some large banks and institutional sellers have tried insisting that home buyers and investors use their title services this is actually a serious violation of federal law. If a buyer is forced to use a specific service they are actually entitled to sue the seller for three times the amount of the title charges, and the entity could lose their license. Under RESPA (the Real Estate Settlement Procedures Act), homeowners and buyers have the right to choose their own title company.
Of course in most cases, buyers will need to request referrals from other real estate industry professionals involved in the transaction. This may include real estate agents and mortgage loan officers. Typically transactions do go more smoothly and quickly when the various parties involved are familiar with each other’s processes.
Title insurance doesn’t actually go into effect until it is paid for at time of closing and settlement. However, the various services title agencies provide are critical to the entire process, especially obtaining mortgage approvals. This makes ordering title one of the first steps to be taken as soon as a purchase and sales agreement is reached. In most cases individuals will want to identify the title company they will work with even before this point, and place their earnest money deposits in escrow with the title company of their choosing at the time of making an offer on a property.
Title companies are the preferred holders of escrowed funds in real estate transactions for many reasons.
An escrow account is a separate third party account where monies are held to facilitate the transaction. This provides safety to buyers, sellers and lenders, in that funds are not actually released, or title deeds and ownership handed over until the right moment, and there can be a simultaneous exchange.
The title company handles all of the money transfers and wires for closings (from the lender and borrower, and to the seller and other third party service providers). A title company may also hold monies in escrow for ensuring property taxes and liens are satisfied. This means it also only makes sense for the chosen title company to also handle any initial earnest money deposits made when entering into a contract to buy a property.
Some real estate brokerages also offer this service for deposits. However, this has become highly controversial due to the funds needing to be forwarded again to the title company
anyway, and some borrowers facing legal battles in having their deposits returned if deals fall apart. A title company is an independent agent working to facilitate the transaction, and if anything represents the buyer and requester of their services.
Never directly give a seller or their representative any upfront monies.
9. Good Title Companies Offer a LOT MORE than Just Title Insurance
The best title agencies offer far more help to home buyers, real estate investors, Realtors, and mortgage professionals than just providing title searches, insurance, and coordinating closings.
A great title agency is a partner in the entire process and beyond, and is key to pulling everything together for a successful real estate closing.
The may also offer many great auxiliary services. Most have attorneys on staff who can assist with ensuring investment strategies are legal, aid in arranging legitimate double closings, help solve title issues so that properties can be sold, and even assist in mitigating and negotiation code violation liens and navigating permit issues to help sellers put more money in their pockets, and create more deals for investors and Realtors.
10. What to Look for in a Title Company
Like any other industry, not all title companies are created equal. Being so critical to a successful real estate transaction, and the long term protection, profitability, and enjoyment of owning a property it pays to make sure you choose a good title agency.
To choose the right company look for:
· Flexible closings when and where they are convenient for you
· Friendly customer service
· A dedication to doing business the right way
· An understanding of real estate in your area
· Willingness to explain anything you don’t understand, happily and repeatedly as necessary
· Fair fees
· A good reputation in the local real estate community
· Auxiliary services which can make the property and transaction even better
· A title company which understands your needs and goals and goes the extra mile to deliver
About Title Now
Title Now is a South Florida title company committed to high standards of service. With a combined 35+ years’ experience in the title industry in FL buyers, investors, realtors and
mortgage companies will be hard pressed to find any other provider with an equal level of expertise and understanding of the local market.
With more than one-third of all title searches revealing a title problem today no one can afford to go without title insurance. However, more than just efficiency in title searches, insurance, and flexible closings, the Title Now team offers an array of additional services to help its clients reach their goals.