Help Protect Your Investment from Title Defects
The choice to purchase or sell real estate often is one of the biggest financial decisions a person will make in life. Title insurance can help you protect that investment from issues that may arise out of potential defects in your title.
While most insurance policies, like car and health, cover you against future incidents, title insurance protects against issues that were created in the past. This coverage is available in two policy types: a lender’s/mortgage policy and an owner’s policy.
A lender’s policy usually is required by a financial institution providing funding for a property, so it can protect its interest in the loan collateral. Generally, the buyer/borrower is responsible for paying the policy premium, which is based on the loan amount. However, this coverage only benefits the lender.
Owner’s title insurance is a separate policy that protects the interest of the buyers/borrowers for as long as they own the property. This coverage is designed to protect against losses that arise due to title defects, which can include unpaid debts, delinquent property taxes, and questionable chains of title, among others. The premium, a one-time fee customarily paid by the seller, generally is based on the sale price.
After a title order and supporting documentation (e.g., sales contract, notice for title) is submitted, a title searcher conducts an extensive examination of the subject property’s records. This process includes checking public records — either online or at the county courthouse — for outstanding mortgages, unpaid taxes, liens for unpaid debts, breaks in the chain of ownership, restrictions on the property, encumbrances such as easements and rights of way, and anything else that could affect a person’s interest in or rights to use the land.
Title experts also search the names of all parties involved in the transaction for any judgments or liens that could attach to the property if not resolved prior to closing.
Once the search is completed, a title commitment is issued. The commitment sets forth any requirements that must be met to issue the final policy, as well as any exclusions the policy will not cover. Our Hometown Title, Inc., staff is adept at helping resolve most any conditions ahead of closing, and if legal advice is needed, we can connect you with one of the real estate attorneys at Benckendorf & Benckendorf, P.C.
Lenders almost always require title insurance, so if your transaction includes a loan, you will need a policy. Because cash sales don’t involve a lender, the decision is up to the parties to the transaction. However, buyers should be informed of any restrictions, reservations, potential fees, and easements affecting the land they are under contract to purchase.
When deciding if title insurance is right for your transaction, keep in mind that the American Land Title Association (ALTA) has reported that “Title searches reveal problems on more than a third of all real estate transactions.” Are you willing to take that kind of financial risk with your home?
Typically, the persons paying for the title insurance are entitled to choose the insurer. They can seek guidance from their agent, lender, or attorney but should not be pressured or forced to go with a specific company as set forth in the Real Estate Settlement Procedures Act (RESPA).
The lender’s policy premium is based on the loan amount, whereas the owner’s policy is based on the sale price. If both policies are issued by the same company at the same time, you may benefit from a simultaneous issue discount on the loan policy. Currently at Hometown Title, Inc., we generally charge $80 for a simultaneous issue policy unless additional insurance is requested, and if a prior policy is provided at the time the title work is ordered, you will receive a $50 discount on your owner’s policy premium.
(Reprinted with permission of Fidelity National Title Group.)