Title is a legal term that refers to one’s right to own, possess, use, control and transfer an interest in real estate. Title may also refer to the way a person holds the ownership (i.e. as a sole owner or jointly with another person). Title may be vested in a person or entity.
Title insurance protects the homeowner from unforeseen claims against the property. The insurance will pay for legal defense, court costs and all related fees. It will also reimburse the homeowner for loss up to the face value of the policy.
Homeowners often ask the question, “Why do I need title insurance?” Your home is most likely the largest purchase you’ll ever make and title insurance plays a key role in protecting your investment.
A detailed title search is conducted after you sign the sales contract to purchase your home. The title search involves examining the land records pertaining to your property over the last 60 years. Though this is a detailed and thorough examination, there are many hidden issues that may not be uncovered by this process. For example, forgeries on original documents, missing heirs, improper deeds and ex-spouses are very difficult to detect in the title search. Title insurance protects you against these hidden risks.
One of the most common types of title issues is unreleased liens on the property. Even if the lien does not belong to you, since it is filed on the property, it becomes “attached” and must be cleared. Approximately one-third of all properties have some type of title issue or defect. An owner’s title insurance policy offers full protection against title defects as well as peace of mind to the homeowner.
It is important to understand the difference between the two types of title insurance policies, a lender’s policy and an owner’s policy. Your lender will require you to purchase a lender’s policy to protect their investment in your property. The lender’s policy is usually based on the amount of your loan, exists only over the life of the loan and protects the lender if a problem arises with the title.
Since the lender requires you to purchase a lender’s policy, you may be wondering why it’s strongly recommended to also purchase an owner’s policy. While the lender’s policy covers their interest in your property, it does not protect the homeowner at all. Consequently, if a title issue arises and you do not have an owner’s title insurance policy, you could be faced with large legal expenses to defend yourself against claims made on your property. With an owner’s policy, you can rest assured that the title company will pay valid claims and cover your legal expenses should a title issue arise against your property.
The owner’s policy is purchased for a one-time fee at closing and is based on the sales price. Unlike the lender’s policy which is effective only for the life of the loan, an owner’s policy covers the homeowner for as long as they or their heirs own the property.
If you refinance your home, the lender will require you to purchase a new lender’s policy since you are obtaining a new loan. The lender wants to be protected in case any claims have arisen since you originally purchased the property. You do not have to purchase a new owner’s policy since the original policy is in effect as long as you still own the property. You also may be entitled to a reissue rate, or discount, on the new lender’s policy if you have an owner’s policy that is less than ten years old.
1) Title abstract: We research the title to the property through a title abstract, which provides a history of the property and its ownership. It is our job to examine the title and clear any liens or claims on the property so that the new buyer receives clear and marketable title to their new property.
2) Survey: Most lenders require a survey, or house location drawing of the property. We will order a survey, with the buyer’s authorization, and review for any potential problems. Should any issues arise on the survey, we will notify the real estate agent, lender and the new buyer immediately. The survey will be given to the buyer at settlement.
3) Property taxes: We verify with the local or state taxing authority that the property taxes have been paid. Similarly, we check with the water company and Homeowners Association to confirm that all payments are current. On the HUD-1 Settlement statement, we will prorate the amounts based on the billing period and the settlement date.
4) Title insurance policy: We prepare the insurance commitment for the lender’s title insurance policy and issue both owner’s and lender’s coverage. There are two types of Title Insurance: Lender’s, which is required by the mortgage company, and protects the lender’s investment in the property; and Owner’s, which may be purchased at settlement for the benefit of the new owner. It is strongly recommended that all buyers receive an owner’s title insurance policy which protects them against any unforeseen claims, hidden risks, or fraud against the property. The insurance policy provides protection from financial loss as well as payment of legal costs necessary to clear such claims.
5) Loan documents for closing: We also coordinate with the mortgage lender to receive the loan documents for closing. Once received in our office, we review all forms and comply with the lender requirements for closing. With these documents, we are then able to complete the
HUD-1 Settlement Statement. This settlement statement is one of the most important documents to sign because it details all of the costs associated with the purchase and sale of the property. We also prepare the deed and other documents necessary to comply with state and federal laws.
6) Closing: At closing, all documents are explained to all parties prior to signing. Settlement lasts approximately one hour. After closing, we disburse all the monies collected at settlement and pay vendors such as the termite company and surveyor. We also pay off and release the existing mortgages on the property and prepare the loan documents to be returned to the lender.
7) Documents recorded in courthouse: It is our responsibility to make sure all documents are properly recorded in the courthouse, such as the new deed and mortgage. We also ascertain the release of any existing liens on the property.
A title search is a detailed examination of the land records concerning a property. A typical search for a purchase transaction goes back 60 years. The types of documents contained in a search include deeds, mortgages, court records, property and name indexes and taxes, as well as many other documents. An experienced attorney or title officer will examine these records to determine if the title to the property is insurable for the new owner. We look to determine the owner’s right to transfer and ascertain any liens or defects on title.
A title search can reveal problems such as defects and liens, as well as unpaid taxes, unsatisfied mortgages, judgments against the seller and restrictions limiting the use of the land. Approximately one-third of all title searches reveal some title defect that must be cleared. The most common type is an unreleased lien. The most problematic title issues are outstanding interests of a person on title or forgery.
All money needed for a real estate transaction must be brought either to settlement or sent to the title company before closing. The money must be “good funds” which means it has to be either in the form of a Cashier’s check or wire transfer. Most title companies will take a personal check if the amount needed is less than $1,000. Generally for funds over $50,000, a wire is required. Ask the title company for their wire instructions prior to settlement. If you plan to move money from investment accounts to bring to settlement, check with your investment company at least a week prior to the close date since it may take several days for the funds to be available.
According to the terms of your policy, title insurance will pay your legal fees to defend yourself against a fraudulent claim and also pay any valid claims, up to the face value of your policy.
Choosing the right title company is very important in making sure your transaction is handled in the most professional manner. You should not base your decision solely on fees but should consider a number of factors such as reputation, experienced staff, and recommendations from other professionals in the real estate industry. The title company should be able to guarantee their fees upfront and in writing and should be available to answer any of your questions either before, during and even after settlement.