What does Title Insurance Cover?
Title insurance protects against claims from title defects. Defects are things such as another person claiming an ownership interest, improperly recorded documents, fraud, forgery, liens, encroachments, easements and other items that are specified in the insurance policy.
What is Title?
Title refers to verifiable ownership in a piece of real estate property, and it serves as the evidence that an owner/seller is in lawful possession of that property.
What is Title Insurance?
Title insurance, is an insurance policy that is issued for protection in real property transactions. It exists to protect real estate owners and lenders against property loss or damage they experience because of encumbrances, liens, or issues/defects in the title (true ownership) to the property. Each title insurance policy is individually underwritten through a large insurance underwriter, and it is subject to specific terms, conditions, and exclusions.
Who Needs Title Insurance?
Purchasers and lenders need title insurance to know the property they are buying is insured against various possible title defects. The insurance policy protects the lender and the buyer. Whether it’s a sale, refinance, construction loan…the seller, buyer and lender all benefit.
How does title insurance actually protect me?
The insurance policy protects you in two main ways. First, the insurance company promises to protect your title in court whenever necessary – at their expense. Second, if there is a cost to settle your claim, should a valid claim against your ownership exist, the insurance company will bear the cost of settlement.
What can slow down my closing?
- Clearing Liens, Judgments
- Clearing Child/Spousal Support Liens
- Common Names
- Clearing Liens, Judgments
- Establishing Fact of Death-Joint Tenancy
- Use of, Proper Execution of Power of Attorney
- Family Trust
- Business Trusts
- Recent Construction
- Physical Inspection Findings-Encroachments, Off-Record Easements
- Proper Execution of Documents
- Proper Jurats, Notary Seals
- Transfers/Loans Involving Corporations/Partnerships
- Last Minute Changes in Buyers
- Last Minute Changes in Coverage
What will the title company require if all the trustees have died or are unwilling to act?
If the trustor is not able to do so, or the trust provisions prohibit the trustor from appointing a new trustee, the court may do so.
What is a trust?
An agreement between a trustor and trustee for the trustee to hold title to and administer designated assets of the trustor for the use and benefit of one or more beneficiaries.
Can a trust itself acquire and convey interests in real property?
No. The living trust is an arrangement between a trustee and a trustor. Only the trustee, on behalf of the trust, may own and convey any interest in real property. The trustee may only exercise the powers granted in the trust.
What will the title company require if a trustee holds the title to the property which is part of the trust?
- A certification of trust containing ALL of the following information:
- Date of execution of the trust instrument,
- Identity of the trustor and trustee
- Powers of the trustee
- Identity of person with power to revoke trust, if any
- Signature authority of the trustees
- Manner in which title to the trust assets should be taken,
- Legal description of any interest in the property held by the trust
- A statement that the trust has not been revoked, modified, or amended in any manner which would cause the certification to be incorrect and that the certification is being signed by all currently acting trustees of the trust.
Why do I need to purchase a new title insurance policy on a refinanced loan?
To the lender, a refinance loan is no different than any other home loan. So, your lender will want to insure that its new loan is protected by title insurance, just as the original lender required. Therefore, when you refinance you are buying a title policy to protect your lender. REMEMBER to ask us about a BIG DISCOUNT on your re-issue credit for a future re-finance closing.
Why does a Lender need title insurance?
Most lenders generate loans and then immediately sell those loans to secondary market investors, such as Fannie Mae. Fannie Mae, in order to protect its security interest in the loan, requires title insurance coverage. Even those lenders who keep original loans in their portfolio are wise to get a lender’s policy to protect its investment against title related defects.
Are there any discounts available for title insurance on a refinance transaction?
Yes. Title companies offer a refinance transaction discount or a short term rate. Discounts may also be available if you use the same lender for your refinance loan and your original loan. Be sure to ask us how it can save you money.
What could possibly have happened since I purchased my home which warrants a new lender’s policy?
Since the time that the original loan was made, you may have taken out a second trust deed on the house or had mechanic’s liens, child support liens or legal judgments recorded against you – events that could result in serious financial losses to an unprotected lender. Regardless if it has been only 6 months or less since you purchased or refinanced your home, a myriad of title defects could have occurred. While you may not have any title defects, many homeowners do. The only way for a lender to adequately protect itself is to get a new lender’s policy each time you purchase or refinance your home.
What if I am buying property from someone I know?
You may not know the owner as well as you think you do. People undergo changes in their personal lives that may affect title to their property. People get divorced, change their wills, engage in transactions that limit the use of the property and have liens and judgments placed against them personally for various reasons. There may also be matters affecting the property that are not obvious or known, even by the existing owner, which a title search and examination seeks to uncover as part of the process leading up to the issuance of the title insurance policy. Just as you wouldn’t make an investment based on a phone call, you shouldn’t buy real property without assurances as to your title. Title insurance provides these assurances. The process of risk identification and elimination performed by the title companies, prior to the issuance of a title policy, benefits all parties in the property transaction. It minimizes the chances that adverse claims might be raised, and by doing so reduces the number of claims that need to be defended or satisfied. This process keeps costs and expenses down for the title company and maintains the traditional low cost of title insurance.
Annual Percentage Rate (APR)
An interest rate reflecting the cost of a mortgage as a yearly rate. The APR is likely to be higher than the stated rate in the Note or Mortgage because it takes into accounting the points, credits and costs.
An evaluation of the property done by a qualified appraiser which estimates the value of the property.
An individual in the mortgage business who assists buyers/borrowers in arranging for funding or negotiating rates for buyers/borrowers. A broker or brokers company does not loan the money. Brokers are generally paid from the loan original fee.
Capital Gains Tax
The taxable profit from the sale of a capital asset. The capital gain is the difference between the sales price and the basis of the property after the appropriate adjustments for closings cost, upgrade, repair expense, allowable depreciation, etc. You should always consult a CPA or tax attorney with questions in regard to capital gains taxes.
The meeting between the buyer, seller, lender, real estate agents and title company to sign the required documents to transfer the property and obtain the loan. The Closing Agent generally handles the signing and funding of the transaction.
A mortgage not insured by FHA or guaranteed by the VA or Farmers Home Loan (FMHA)
Debt to Income
The ratio expressed as a percentage which results when a borrower’s monthly payment obligation on long-term debts is divided by net effective income or gross monthly income, depending on the type of loan.
Failure to make payments on time. Delinquency may lead to foreclosure.
The money paid to make the difference between the purchase price and the mortgage amount. Down payments are usually between 5-20 percent of the sales price. The down payment amount may be based on the type of loan.
Earnest Money (Escrow Deposit)
The money given by the buyer, generally to the real estate agent or closing agent as a part of the purchase price to bind the transaction.
The portion of the buyer’s/borrower’s monthly payment that is held by the lender to pay the taxes, hazard and/or flood insurance, mortgage insurance, etc. as they become due.
Insurance which protects the buyer/borrower from specific losses, such as fire, windstorms, etc.
A claim upon a piece of property for the payment or satisfaction of a debt or obligation.
Loan to Value
The ratio of the mortgage principal to the appraised value (selling price) of the property.
Highest price a buyer would pay or the lowest price a seller would accept for the property. Market Value may be different from the sales price a property may actually be sold.
The pledge to secure a debt by a written instrument given by the buyer/borrower for real property. This document must be recorded in the Clerk of the Court of the county in which the property is located.
A written promise to pay a certain amount of money.
Fee charged by the lender to prepare loan documents, do credit checks and inspections of the property. This amount is usually computed as a percentage of the face value of the loan.
Principal, Interest, Taxes and Insurance. This refers to monthly housing expenses.
Power of Attorney
A legal document authorizing another party to sign on behalf of a person. Most powers of attorney must be specific to the property and/or transaction.
The amount of debt without including the interest due on the loan.
Private Mortgage Insurance
If a buyer does not have a 20% down payment the lender will allow a smaller down payment, however the borrower is required to have private mortgage insurance which requires a monthly premium payment to the lender.
A Real Estate Broker or an Associate holding an active membership in a local real estate board affiliated with the National Association of Realtors.
Money paid to the County where the property is located based on the sales price and/or mortgage loan amount.
Real Estate Settlement Procedures Act.
Document that gives evidence of an individual’s ownership in real property.
An insurance policy that protects the insured, owner and lender against losses arising from defects in title.
Examination of the public records that determines the legal ownership of property.
Truth in Lending
Federal Law requiring disclosure of the APR (Annual Percentage Rate) to the buyer/borrower after application for the loan is completed.