What is title insurance and why do you need it? On this page, we've listed the answers to these and other commonly asked questions.
We suggest that you read through this information to better understand the value of title insurance in protecting your homeownership. And the general real estate information will help make the home-buying process a smoother one.
Please contact us if you have additional questions or would like more detailed information about any of the FAQs below.
FAQs: Title and Title Insurance
is a title?
When you purchase a home, you are really 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 asserted by others. These types of claims can infringe upon your purchase of the property or cause you to lose money.
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.
do you need title insurance?
A home is usually the largest single investment any of us will ever make. Title insurance protects against loss of value from hazards and defects that may exist in the title. These hazards 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 significant money defending yourself or you could lose your home. Your mortgage lender will require a loan policy of title insurance to protect their interest in the value of your property and a homeowner should purchase an owners policy for the very same reason.
How does title
insurance differ from other types of insurance?
Most insurance policies protect against losses arising out of possible future events. The primary purpose of title insurance is to prevent losses from defects in title arising out of past events.
Is a homeowner required to
have title insurance?
Yes and no. While the lender will likely require a loan policy of title insurance, the purchaser can choose what type of owners protection, if any, to use with regard to their title. However, without an owners policy, the homeowner will not be protected against hidden hazards or reimbursed for legal expenses for defense or claims that affect the value of the property.
How does title insurance protect
An owners 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 generally paid at closing, an owners title insurance policy remains in effect as long as you, or your heirs, retain an interest in the property.
Why does your lender require title
insurance during refinancing?
From the lenders standpoint, a refinanced mortgage is actually 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 lenders title insurance policy is rendered null and void. However, if you purchased an owners policy of title insurance at your original closing that policy will remain in effect as long as you or your heirs own the property.
much does title insurance cost?
Probably less than you think. Charges vary in different sections of the country, but generally the cost of title insurance (including the search, examination and related services) amounts to about one percent, or less, of the cost of the property. And unlike other insurance premiums, which must be paid annually, a title insurance premium is paid one time only, usually at settlement.
What is the difference between
title insurance and homeowners insurance?
Homeowners 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 as well as the land it occupies.
long does title insurance coverage last?
The lenders policy of title insurance lasts until the mortgage is paid in full. The owners 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 though 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.
Who is protected by the different
types of title insurance?
Only the lender is covered by the Mortgagees Title Policy; both the buyer and the seller are protected by the Owners Title Policy.
How does title insurance protect
a homeowners 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 homeowners 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.
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.
Where can a title insurance policy
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 recommend such a company.
What is a title search?
A title search is a detailed examination of a propertys historical records, such as deeds, court records, and many other documents. The purpose of the search is to verify the sellers right to transfer ownership, and to discover any claims, defects, and other rights or burdens on the property.
kinds of problems can a title search reveal?
A title search can show title defects and liens, as well as other encumbrances and restrictions, including any unpaid taxes, unsatisfied mortgages, judgments against the seller and restrictions limiting the use of the land.
current property owner already has title insurance. Why do I need another title
A title policy insuring the seller does not protect the buyer. Also, many things could have happened to the land since that owners policy was issued. Your seller could have a mortgage, a home equity loan, judgments, or unpaid taxes that would not be covered in the sellers title policy.
is a title defect or encumbrance?
A title defect occurs when information is missing from a title, such as the existence of a previous owners 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.
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 oversight on behalf of the individual making the opinion, not against hidden hazards.
is transferring the title to real estate different from transferring the title
to other items, such as a 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 in order to ensure transfer of a clear title.
What is escrow?
Escrow enables the buyer and the seller to transact business with each other through a neutral party, thereby minimizing their 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.
Why do I need escrow?
Whether you are the buyer or the seller, you want assurance that no funds or property will change hands until all of your instructions have been followed. With the increasing complexity of business, law and tax structures, it takes a trained professional to supervise the transaction.
chooses the escrow?
The selection of the escrow holder is normally done on the agreement between principals in accordance with contract purchase agreement between said principals.
Who can handle
The escrow holder may be any disinterested third party, although some states require that certain escrow holders be licensed. Escrow officers with established firms generally are experienced and trained in real estate procedures, title insurance, taxes, deeds and insurance.
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 construing them at a later date.
What are the types
- Residential: single family/condominium/1-4 multi-family
- Commercial: retail/industrial/office/hotels
- Subdivision: tracts/condo conversions
- Apartment building (over four units)
Also: sale of notes and trust deeds, new loans, sub-escrows, tax deferred exchanges and business opportunities.
What is a closing?
Closing, which is also known as 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 agreement between buyer and seller. In addition, all financial issues are settled at closing closing costs and once the title is successfully transferred, the necessary documents are prepared, signed, and filed with local authorities.
are closing costs?
Closing costs are all costs required to close the 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.
What will happen
during the closing process*?
- You might do a final walkthrough of the home.
- Youll go to the closing location and show your picture ID to the settlement agent.
- Youll present your paid homeowners insurance policy, or proof that the premium has been paid.
- Your settlement agent will review the closing statement or HUD1 statement with you, showing all items for which you have paid.
- Youll get inspection reports and warranties.
- Youll sign the mortgage, agreeing that if you dont 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.
- Youll sign a mortgage note, which is your promise to repay the loan.
- Youll typically be given the title to the house in the form of a deed, signed by the sellers.
- You will be asked to sign a number of other documents required by your lender.
- The deed and mortgage will be recorded in the local courthouse or county recorders office, sometimes called the Registry of Deeds.
- Youll get the keys to your house!