For the most part, title insurance is almost always required by the lender. This insurance is used to protect the lender against loss resulting from legal claims by others against your new home. In some states, lawyers will offer insurance as a portion of their services in examining the home's title and providing a title opinion as to whether it is clear or not. The attorney's fee may include the title insurance premium or in some cases it may not. In other states, a title insurance company or title agent directly provides the insurance.
It is important for consumers to understand that the lenders insurance policy does not protect the consumer. The same is true with the prior owners policy; it does not protect you. When you need to protect yourself against claims by others against your new home, you will need what it is called an owner's policy. The truth is should a claim occur, it can be financially devastating to the homeowner who is uninsured.
It is good to keep in mind that if you buy an owner's policy, it is much less expensive if you buy it at the same time and with the same insurer as the lender's policy.
Consumers should also know that the home seller may not require, as a condition of the sale, for you to purchase insurance from any particular title company. The mortgage lender will, however, require that the insurance is from a company that is acceptable and reliable. As the homebuyer, you can choose a company that meets the lenders standards.
Generally speaking, a few weeks before the closing of the escrow, the insurance company will issue what is called a "Commitment to Insure" or preliminary report or "binder" containing a summary of any defects in the title which have been identified during the title search. There may also be listed any exceptions from the insurance policys coverage. The commitment to insure is sent to the mortgage lender for use until the title insurance policy is issued at or after the closing.
If you wish, you may have a copy sent to you or to your lawyer, so that you can examine it and object if need be to the contents.
Consumers should compare rates between different title insurance companies. This can result in big savings. Make sure you ask about the services and limitations under each policy so that you can decide whether coverage purchased at a higher rate may be better for your needs.
In many states, insurance premium rates are dictated by the state and those rates may not be negotiable. If you are buying a home which has changed hands within the last several years, ask your title company about a "reissue rate." This can be much less expensive.
When purchasing a brand new home, make sure that your insurance covers claims by contractors. These claims are known as "mechanic liens".
Mortgage lenders or title insurance companies will very often want a survey done in order to mark the boundaries of the property. A survey is simply a drawing of the property that details the perimeter boundaries and marks the location of the home and any other improvements that might be on the land.
You might be able to save some money if a past survey is available and no changes have been made to the property in the interim. You should check with your lender or insurance company on whether an updated survey will be acceptable.
Whenever title passes, the seller usually gives a deed containing certain guarantees or "warranties" (hence the name "Warranty Deed"). The seller warrants that title is good, that is, no one will come challenge the integrity of the title. For example, if a deed that was passed before him was forged, all subsequent transfers are void. Other problems may be more subtle, such as a deed with an incorrect legal description or misspelled name. Any irregularities in the "chain of title" will place a "cloud" on the integrity of the title.
When you are ready to sell a property, a title search is performed by a title company or attorney. The title searcher follows the chain of title back about 50 years, tracing the ownership through deeds recorded in pubic records.
The searcher also checks to make certain that previously recorded mortgages and other liens have been released. Based on documents found in public records, the title company or attorney will prepare a "title insurance commitment." A commitment is a statement that based upon certain documents found by a search of public records, the company will issue a title insurance policy for a certain fee.
The title insurance policy, unlike most insurance policies, covers past events. For example, the daughter of a previous owner claims that her father conveyed a deed while not mentally competent, the current ownership may be in jeopardy. The title insurance company will defend the claim and pay for any damages (usually the value of the property).
The policy does not cover claims based on events that occur after the policy is issued. Furthermore, the policy usually contains numerous exceptions, such as claims based on information undisclosed to the title company. Thus, if you are aware of any potential problems that might lead to a claim, your failure to disclose this information to the title company will lead to a denial of a claim based on those events.
A title insurance coverage starts from ancient history and ends from the date you transferred title. Since most transfers are insured by a title company, the longer you own the property, the more the policy costs.
Consider this: if you buy a property and the transaction is covered by title insurance, then you sell it six months later, what are the chances that something went wrong in the last six months? The answer is that the chances are slim to none, so the risk of a claim against the title are slim to none. For this reason, title companies offer a "re-issue" rate.
The re-issue rate is a discounted price (usually about 40%) on the title insurance policy if another policy from a title company was issued on the same property within the last few years. The rate is lower because any claims that arise from events before the previous owner are covered by the previous policy. Thus the new policy really deals with the risk of claims from events that occurred while you owned it.
If you are buying a property with the intent of re-selling it within a year, ask the title insurance company for a "hold-open" policy. For a small fee (usually an additional 10% on the policy), the title company will hold a title commitment open for a year or more.
Rather than issue a policy based on the first transfer (from the seller to you), they will issue a policy on the second transfer (from you to the next buyer). Since the seller usually pays for title insurance, you can pay the additional 10% when you buy, saving 90% on title insurance when you sell
Both Peter Kenny & Richard Reichmann are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Peter Kenny has sinced written about articles on various topics from Credit Cards, Finances and Best Money Market. Peter Kenny is a writer for The Thrifty Scot, please visit us at and. Peter Kenny's top article generates over 368000 views. to your Favourites.
Richard Reichmann has sinced written about articles on various topics from Real Estate, Property Investment and Health Insurance. Richard Reichmann is internationally known as a millionaire maker. He's a leading consultant in real estate and internet marketing strategies that are profit proven.Subscribe to our FREE newsletter Value $147.00. Richard Reichmann's top article generates over 8100 views. to your Favourites.