Educational Consumer Tips
Author: Better Business Bureau
Buying a home is one of the biggest decisions and purchases made in most consumers’ lifetimes. It is important to protect the investment with title insurance. Use the following tips to better understand and obtain title insurance for your property.
Tips for Understanding and Obtaining Title Insurance:
Understand Title Insurance. A title insurance policy provides assurance that you actually own the property you think you own. The purchase of title insurance buys you protection based on a title search of public records that trace the chain of ownership and guarantees the title is accurate as stated. The two types of title insurance policies include:
· Lender’s Title Insurance: Mortgage lenders in most parts of the country require lender’s title insurance. This type of title insurance is issued in the amount of the mortgage loan and protects the lender’s security interest in the real estate. As the mortgage is being paid off, the coverage amount decreases until it eventually disappears when the mortgage is fully paid.
· Owner’s Title Insurance: Owner’s title insurance is issued in the amount of the purchase price of the property. This type of title insurance will protect the buyer’s interest and the buyer will be covered for all valid claims on the title as insured.
Avoid Potential Title Problems. Before buying property, it’s imperative to know what rights the seller can pass on and if anyone else may have interest in the real estate that can affect your ownership and use of the property. Challenges to ownership can include claims by heirs, forged deeds, and mistakes in public records. Potential problems that could restrict the rights of the buyer may arise from adjoining landowners who enforce property restrictions, rights of a utility company building power lines on the property, or a lien from the government for back taxes on the property.
Get a Title Search. The title search will determine what restrictions there may be on a property. This can be a complicated process that involves a close examination of records with the office of recorders, register of deeds, clerks of courts, and other municipal officials. The title search uncovers records for all recorded judgments, street and sewer assessments, special taxes and assessments, and other documents that could influence the title of the property. Regardless of how thorough the title search is, there is always the possibility of problems that fail to show up when examining the public records. There is a wide list of problems that could cause financial loss or even the loss of the property if the buyer is not covered by title insurance.
Know What’s Covered. Owner’s title insurance is able to cover problems with the title that may have not shown up in the title search including:
· mistakes made in researching the title,
· errors in public records, and
· claims that appear after the title has been issued.
The title company will also cover legal fees that are incurred, should you ever have to defend your right to the title against a claim on the title as insured, as long as the purchaser or their heirs have an interest in the property. Title insurance excludes coverage of items the title search revealed as serious problems such as:
· mineral and air rights
· liens on the property,
· or difficulties related to easements.
It’s best to take care of these problems before the purchase. The coverage of defects you create after purchasing the property is not included. Additional coverage such as, inflation riders, are available from title insurers to increase the policy liability as the property value increases. Ask if you are obtaining “survey coverage”. Survey coverage may require an additional expense, but if your policy has a survey exception you will not be covered for encroachments.
Understand The Cost of Title Insurance. Title insurance is paid when the property is purchased and the one-time premium is usually included in the closing costs. Unlike casualty insurance, there is no annual or renewal premium. A real estate broker, lender, settlement attorney, or other real estate professional usually handles this purchase. In some locations it’s common for the buyer to have to specifically request and pay for the title insurance. It’s estimated the average cost for the owner’s title insurance policy is $3.50 per $1,000 and lender’s title insurance is $2.50 per $1,000, although the price depends on the local marketplace. When purchasing both types of title insurance together, the cost is often lower than when purchased separately. Depending on your location, the cost of title insurance and title search could be separated or the title insurance premium could include the title search, examination, and additional closing costs.
Research Title Insurance Policies. Your mortgage lender may suggest a specific title insurance policy, but it’s best to shop around for the best price for the amount of coverage given. Remember to check out the businesses at bbb.org to read reviews or complaints. Ask businesses for their rate schedule, as they may be able to bring down the price to earn your business. If you are buying from a seller who has only owned the property for a short time, ask if their title insurance policy can give you a “reissue rate” because less research needs to be done.
Questions and Comments
Question Submitted 1/14/2013If there is an exception on the Title Commitment and it is not listed on the short form lenders title policy, is the lender covered? Or since it is listed on the commitment, can the title insurer state that it was disclosed (even though the title insurer left the exception off of the final lender's policy)? For example, an exception for a line of credit is on the Commitment but it is not on the final title policy. If the home were to be foreclosed on because the borrower quit paying on their line of credit, would the title insurer have to cover my company in full because it was not listed as an exception on the title policy?
BBB's Answer:Below is some basic info on Title Commitment. You may want to contact your insurance agency with specific questions.
When you buy a home, in most cases you will be required to obtain title insurance. Title insurance protects your legal ownership of the property you buy. The insurance policy will be subject to certain exclusions and exceptions. Prior to issuing the insurance, the title company will conduct a thorough search of public records to determine the exceptions to coverage, such as any liens or restrictions that affect ownership of the property.
For example, if the seller failed to pay property taxes, the government would have a lien against the property. The property could be seized and sold to pay off the seller’s back taxes. If you were to purchase the property without knowing about the unpaid taxes, you could end up having to pay the back taxes yourself or risk losing the property.
When you purchase title insurance, the insurance company informs you of any outstanding liens so that you can require the seller to satisfy the liens before you close.
Prior to your closing, the title company will issue a commitment for title insurance. This commitment will indicate:
The commitment for title insurance is not the actual policy, but it guarantees that the policy will be issued if conditions specified in the commitment are met. In almost all real estate transactions, separate title policies will be purchased for the lender and the buyer.As the buyer, you would typically purchase the lender’s policy, which covers only the amount of the loan. The buyer’s policy — which insures you, the buyer — is for the full sales price and it is often paid by the seller.
Question Submitted 1/16/2013Who should pay for the title insurance on a commercial policy?
BBB's Answer:I believe this is negotiable.
Question Submitted 1/16/2013If a title company does not properly research property taxes owed, then the seller gets hit with an escape assessment that was not handled in closing, will title insurance cover this mistake? My situation involves a trustee, and the death of the first trustee who set up the trust, then the death of the first successor trustee. I am facing a reassessment going back to the first death. This all should have been researched during closing. Thank You
BBB's Answer:You will have to contact your attorney with this specific question.
Question Submitted 2/7/2013Is there a time limit the title insurance company has to resolve a problem with the title? We bought our house 5 years ago went to sell and found out there was a problem with title. It has been 8 months now and they stil haven't resolved problem and we can't afford that mortgage and our house rent! Do we have any more options??
BBB's Answer:I am not sure if a time limit is stipulated on this or not. I would check with the attorney you are or were working with to sell the house.
Question Submitted 2/9/2013My mother passed away and her home is in active foreclosure. I found a title insurance policy, Does this cover or protect the esatate? I am the executor of the estate. Does it protect the home from auction sale? I am trying to do a loan modification.
BBB's Answer:You would have to refer to the policy and review what it covers. Title Insurance typically provides protection against loss arising from problems connected to the title to your property.
Question Submitted 2/21/2013Does title insurance plus cover structural damage to foundation?
A title insurance policy, in effect, provides an assurance that you really own the property you think you own. When you purchase title insurance, the protection you are buying is based on a title search of public records that traces the chain of ownership of the property involved, and includes a guarantee from the title company that the title is accurate as stated.
Question Submitted 3/6/2013We were the first owners when we bought our house new in 2004.We refinanced in 2009 and are going to refinance again now because of lower rates. We are going through the same bank we refinanced with in 2009. There's never been any outstanding liens, never an issue or question about the title, never missed a payment, never had any kind of legal trouble. We have excellent credit ratings and scores. Our bank is including $601 for title insurance in our Estimate of Costs. Why are they charging us for that again and do we have to pay it? Thank you.
BBB's Answer:I would check with your attorney and have him advise you on this.
Comment Submitted 4/7/2013What is a reasonable time frame after a closing that a title insurance policy is issued (policy written and filled with the title insurance company)? 4 days? 4 months?
Comment Submitted 4/11/2013I REFINANCE MY HOUSE IN 2005 AND THE TITLE COMPANY ISSUED CHECKS TO CREDITORS I OWED MONEY TO. I DIDN'T CHECK MY CREDIT REPORT TILL NOW AND I FIND OUT THAT THE CHECKS THEY ISSUED WHERE NEVER SENT TO MY CREDITORS. NOW I CALLED THEM AND THEY SAID THEY DON'T KEEP TRACK OF OPEN CHECKS. THEY SAID THE MONEY IS IN THERE NON INTEREST BEARING TRUST ACCOUNT. THOSE ACCOUNTS BACK THEN WERE PAID IN FULL NOW THERE A NEGATIVE ON MY CREDIT REPORT OR A CHARGE OFF. WHAT CAN I DO? I WOULD HAVE NEVER KNOWN IF I DIDN'T CHECK MY CLOSING STATEMENT TO SEE WHAT CREDITORS WERE PAID. HOW MANY OTHER CHECKS ARE THE KEEPING FROM OTHER CLIENTS. I TOLD THEM EVERY MONTH YOU HAD TO CARRY THOSE CHECKS ON YOUR BOOKS.
Question Submitted 4/14/2013In 1987 I purchased a lot with pool on same 1 3/4 acres, I purchased title Insurance. Now I want to sell..I am 78..and i find out I only own 1 1/5 acre. Here the deed dept at court house made a mistake..I already hired a lawyer, but he really doesn't tell me a thing. Will my title Insurance that I purchased in 1987 cover all this expense to have things corrected??????
BBB's Answer:Your attorney will need to assist you with this.
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