What is a Title?
Simply stated, the title to a piece of property is the evidence that the owner is in lawful possession of that property.
What is Title Insurance?
Title insurance protects real estate owners and lenders against any property loss or damage they might experience because of liens, encumbrances or defects in the title to the property. Each title insurance policy is subject to specific terms, conditions and exclusions.
How Does Title Insurance Differ from Other Insurance?
Insurance such as car, life, health, etc., protects against potential future events and is paid for with monthly or annual premiums. A title insurance policy insures against events that occurred in the past of the real estate property and the people who owned it.
Another difference is in how the policies are paid for. Title insurance is purchased with a one-time premium and provides coverage for as long as the policyholder or their heirs own the property. This is unlike the annual or monthly premiums, you must pay for other insurance types.
If a homeowner were to pay the national average cost of a title insurance policy and live in their home for just five years, the annual average cost of the title insurance policy would be less than $200 a year.
What Does It Cover?
While other types of insurance (such as flood, auto or homeowners’ insurance) provide coverage that focuses on possible future events, title insurance protects against loss from hazards and defects already existing in the title to a property.
Title insurance protects real estate owners and lenders against any property loss or damage they might experience because of liens, encumbrances or defects in the title to the property. Defects are things such as another person claiming an ownership interest, improperly recorded documents, fraud, forgery, liens, encroachments, easements and other items that are specified in the insurance policy. Some examples of such defects might be improperly executed documents from a previous sale of a lien against a previous owner. Each title insurance policy is subject to specific terms, conditions and exclusions.
Over half of all real estate transactions have a problem somewhere in the chain of title. We find these issues and assist in taking corrective action to enable the transactions to go through and allow our customers to have peace of mind about their new home purchase.
Who Needs Title Insurance?
Purchasers and lenders need title insurance in order to be insured against various possible title defects. The seller also benefits from issuance of title insurance, as it usually involves verifying the payment of their debts and tracking the release of their mortgages or liens.
How is a Title Insurance Policy Created?
After the escrow officer or lender opens the title order, the title agent or attorney begins a title search. A Preliminary Report, “the Commitment”, is issued to the customer for review and approval policy is created and delivered. All closing documents are recorded upon escrow’s instruction. When recording has been confirmed, demands are paid, funds are disbursed, and the actual title insurance policy is created.
What Are The Title Insurance Policy Types?
There are two basic kinds of title insurance:
Lender or mortgagee protection and Owner’s coverage
The Owner’s Policy insures the new owner/home buyer, and a lender’s policy insures the priority of the lender’s security interest. Most standard real estate contracts call for the issuance of an owner’s title policy. Often, it calls for an “enhanced” policy, which gives the homebuyer even more protection.
Virtually all lenders require a lenders’ title insurance as security for their investment in real estate, just as they may call for fire insurance and other types of coverage as investor protection. When title insurance is provided, lenders are willing to make mortgage money available in areas where they know little about the market.
Owner’s title insurance lasts as long as you, the policyholder – or your heirs – have an interest in the insured property. This may even be after you have sold the property.
Depending on local practices and state law where the property is located, you may pay an additional premium for an owner’s policy or you may pay a simultaneous issue charge – usually a smaller amount – for the separate lender coverage. You may even split settlement costs with the seller for the lender or owner’s policy.
What Does The Premium Pay For?
An important part of title insurance is its emphasis on risk elimination before insuring. This gives the policyholder, the best possible chance for avoiding title claim and loss.
Title insuring begins with a search of public land records affecting the real estate concerned. An examination is conducted by the title agent or attorney on behalf of its underwriter to determine whether the property is insurable. The examination of evidence from a search is intended to fully report all material objections to the title. Frequently, documents that don’t clearly transfer title are found in the chain, or history that is assembled from the records in a search. Here are some examples of documents that can present concerns:
• Deeds, wills and trusts that contain improper wording or incorrect names
• Outstanding mortgages and judgments, or a lien against the property because the seller has not paid taxes
• Easements that allow construction of a road or utility line
• Pending legal action against the property that could affect a purchaser
• Incorrect notary acknowledgments through the search and examination, title problems are disclosed so they can be corrected whenever possible. However, even the most careful, • preventative work cannot locate all hidden title hazards.
Why An Owner’s Title Policy Is Critical to Protecting You Home
Buying a home is an exciting process, but also a complicated one. When you decide to purchase a home, there are many services provided that ensure the property is a solid and safe investment for you.
• An appraisal determines the value.
• An inspection lets you know the condition of the home.
• A survey indicates the precise property lines and locates matters of record that may affect your use of the property.
• And the title insurance company searches public records to make sure your home is free of old claims.
Although a thorough search of the records is made before the transfer of property, fraud, unforeseen events and human error make 100 percent risk elimination impossible. Remember that the mortgage lender requires title insurance to protect its investment, even though it has enormous capital reserves and is in the best position to spread its risk among hundreds or thousands of loans. So, if the lender requires it, it’s probably a good idea for you as well, because Lender’s Title Insurance does not protect you.
Owner’s Title Insurance is not required by lenders for home mortgages, but it is one of the most important and affordable protections you can buy. For a one-time fee paid at closing, it protects you for the entire time you own the home. Lenders demand title ownership protection … and so should you.
Why Do You Need Both Policies?
Let’s imagine you purchase a home worth $500,000*, make a down payment of $150,000 and take out a $350,000 mortgage. If a claim made against your property is successful, you could lose title to your home.
Under the Lender’s policy, the lender will be reimbursed for its $350,000 investment in your mortgage. Without an owner’s policy, you could lose:
• Your home
• Your down payment (in this scenario, $150,000)
• Any equity you have built in your home
• Any appreciation in your home’s value
• The value of any improvements made to your home
• The cost of legal fees to defend ownership of your home
• The value of your time in improving your home
• The opportunity to sell or refinance your home in the future
What Kind of Claims Can Be Made That Would Jeopardize Your Rights?
• Discovery that the original deed was forged.
• A deed is valid but provided without consent from a co-owner.
• Incorrect boundary and easement problems.
• Undisclosed easements and taxes.
• Unknown or missing heirs with claims to the property.
• Discovery that a previous lender still has claim to the property.
• A lien or claim that may not have been recorded, from a contractor who made improvements
• on the property.
• And many more…
How Does Title Insurance Protect You?
First, title insurance covers legal fees if you have to go to court to defend your title. Second, it covers any losses you may incur from a successful claim against the property. When the time comes, we hope you will purchase your Owner’s Title Insurance Policy from the company that offers you financial stability and peace of mind, Foundation Title & Escrow.
If you are looking to learn more about title policies and title insurance we have the resources and people to guide you through the process. To learn more about Foundation Title & Escrow Series, LLC. and their services please visit their website.