Title Insurance

Dick LePre  (His company provides services on mortgages. Click to see more)

Normally I write all the material myself, but there was no sense in reinventing the wheel with the following info that both buyers and sellers should recognize. EFM

"Whether you are purchasing or refinncing you will need (or someone will need) to pay for title insurance. There are 2 title insurance policies. When you purchase a home you receive an "owners" title insurance policy. Also, the lender receive a "lender's policy".

The owner's policy will last for as long as you own the home. The lender's policy terminates when the lender is paid off. This necessitates a new lender's policy whenever you refinance.

Why Title Insurnace?

Like any form of insurance, title insurance is an exchange of a relatively small amount or money - the title insuance premium - in lieu of the potentially catastrophic expenses that might arise from a defect in your unincumbered ownership of your property.

When you buy a home you expect certain things from the transaction. Like, maybe, you want to live in it. Maybe you want it free from debt obligations not created by you. Maybe some day you want to be able to sell it or put it up as security for a loan. Title insurance gives you the assurance that you will be able to do all of these things.

Title insurance will reimburse you for loss due to defects existing PRIOR to the issue date of your policy, up to the policy amount. The policy also provides for the cost of legal defense of your title.

When you buy a home you will get a detailed title policy. This will express all of the known restrictions on the property. These are things such as: property taxes, easements, covenants conditions and restrictions (usually relevant for condos and planned unit developments), and anything that restricts your ownership interest. Anything not mentioned is, thus, covered by the title policy.

What's Realy Behind This?

The answer is: a lot of little things. For example:

- Forged deeds, mortgages, satisfactions or releases.

- Undisclosed but recorded federal or state tax lien.

- Undisclosed but recorded prior mortgage.

- Adverse claim of vendor's lien.

- Deed from partnership, unauthorized under partnership agreement.

- Deed from purported trustee, unauthorized under trust agreement.

- Misinterpretation of wills, deeds and other instruments.

- Deed from a legal non-entity (styled, for example, as a church, charity or club).

- Deed by person in a foreign country, vulnerable to challenge as incompetent, unauthorized or defective under foreign laws.

- Deed to land without a right of access to a public street or road.

If you are the sort who enjoys reading a list of things that can go wrong or just a plain old scitzophrenic paranoid - read that list. It should give you enough to worry about for weeks.

What Losses Really Occur?

The things that title insurance companies take losses on fall into than category of things that I will politely refer to as "Bleep Happens". These are: scams, changes in judicial minds, inaccessability to the property due to lack of easements across surrounding lots, inattention to details in recorded instruments, and just taking people's word.

So Why Do I Have to Pay for Escrow Also?

Whether you are purchasing or refinancing there will be an escrow fee as well as a title insurance fee. The relationship between the title insurance and the escrow varies geographically. In some states an attorney does the escrow and a title insurance company provides the title insurance. In some places, one title insurance/escrow company provides the title insurance and another provides the escrow. In my office in San Francisco we generally use the same company to provide both. Exceptions are made when their title plant cannot produce the preliminary title report quickly enough. In this case, we generally open an escrow with them and have them oreder the title insurance from a company that can produce the preliminary title report quickly.

Who's Choice Is This?

Practically speaking, in the case of a purchase transaction, the listing Realtor opens the escrow. In the case of a refinance, the loan officer does it. You, as the customer, can direct otherwise but understand that Realtors and loan officers choose escrow companies and specific escrow officers because we have better control over the transaction. It makes sense that our loan officers get better results from an office where we are 50 escrows a month.

Can You Get a Deal?

Title Insurance companies generally give a discount on any property where title insurance has been given in the previous 5 years. Title insurance companies publish their rates with the State Insurance Commissions and are not allowed to give anyone a special deal. In recent years, title insurance companies have gotten into legal difficultly for such practices as locating escrow branches in the offices of Realtors whom they did a lot business with. The reasoning is that, even if there is no financial consideration, the convenience of the office was something of value to that Realtor and not others and, thus, amounted to something such as a discount or preference."

Title Insurance:  (2003) The American Land Title Association (ALTA) notes that title insurers paid approximately $460 million in claims in 2001, compared with $350 million the previous year. These payments were made to or on behalf of insured homeowners for losses they experienced under policies issued to them or their lender, or to defend those titles from the claims of others.

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