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Title & Settlement Service FAQs

What is title insurance and why do I need it?

Basically, title insurance help ensure that you have clear title to the home you’re purchasing and provides insurance protection in the event that anyone makes a claim to your property. A title search is the primary component of “due diligence,” a process that will be started either by your attorney, if you are using one, or by the title company you choose. The titles search determines whether the seller actually owns the property and if there are any claims against it.

Review our recommended title and settlement services providers and FAQ pages for more information.

What is title insurance?

An insurance policy–protecting against loss should the condition of title to land be other than as insured. Title insurance is a unique form of insurance. It provides coverage for future claims or future losses due to title defects which are created by some past event (i.e., event prior to the acquisition of the property).

Do I need Title Insurance?

It is not a legal requirement, though if you have a loan associated with the purchase it will be a lender requirement. Regardless, it is a good idea to obtain title insurance. Title insurance is a means of protecting yourself from financial loss in the event that problems develop regarding the rights to ownership of your property. There may be hidden title defects that even the most careful title search will not reveal. In addition to protection from financial loss, title insurance pays the cost of defending against any covered claim.

Why do I need title insurance?

When you buy a home, or any property for that matter, you expect to enjoy certain benefits from ownership. For example, you expect to be able to occupy and use the property as you wish, to be free from debts or obligations not created or agreed to by you, and to be able to freely sell or pledge your property as security for a loan. Title insurance is designed to cover these rights.

What can make a Title Defective?

Any number of problems that remain undisclosed after even the most meticulous search of public records can make a title defective. These hidden “defects” are dangerous indeed because you may not learn of them for many months or years. Yet they could force you to spend substantial sums on a legal defense, and still result in the loss of your property.

What are “clouds” on a title?

A “defect” or “cloud” on the title is a problem that makes ownership questionable. For instance, a previous owner sold the property 15 years ago. His wife was listed on the deed but for some reason did not sign-off at closing. Her interest in the property is a “cloud” and must be removed to clear the title.

What if I have a problem? Do I have to lose my property to make a claim?

No. If you are advised or suspect a claim adverse to your title, you should contact your title insurer or the agent who issued your policy. Title insurance includes coverage for legal expenses which may be necessary to investigate, litigate or settle an adverse claim.

How often must I pay the title insurance premium?

Title insurance policies are paid in-full with a one-time fee which is usually part of closing costs.

What does this cost?

The cost varies, depending mainly on the value of your property. The important thing to remember is that you only pay once, then the coverage continues in effect for so long as you have an interest in covered property. If you should die, the coverage automatically continues for the benefit of your heirs. If you sell your property, giving warranties of title to your buyer, your coverage continues. Likewise, if a buyer gives you a mortgage to finance a purchase of covered property from you, your coverage continues to protect your security interest in the property.

If my lender gets title insurance for its mortgage, why do I need a separate policy for myself?

The lender’s policy covers only the amount of its loan, which may not be the full property value. In the event of an adverse claim, the lender would ordinarily not be concerned unless its loan became non-performing and the claim threatened the lender’s ability to foreclose and recover its principal and interest. And, in the event of a claim there is no provision for payment of legal expenses for an uninsured party.

There are two types of Title Insurance. Your lender likely will require that you purchase a Lender’s Policy. This policy only insures that the financial institution has a valid, enforceable lien on the property. Most lenders require this type of insurance, and typically require the borrower to pay for it.

An Owner’s Policy on the other hand is designed to protect you from title defects that existed prior to the issue date of your policy. Title troubles, such as improper estate proceedings or pending legal action, could put your equity at serious risk. If a valid claim is filed, in addition to financial loss up to the face amount of the policy, your owner’s title policy covers the full cost of any legal defense of your title.

What are different types of claims, or risks, covered by title insurance?

There are basically three different levels of coverage: Standard coverage, extended coverage, and an advanced coverage.

An example of an Owner’s Policy basic coverages include:

  • False impersonation of the true owner of the property
  • Forged deeds, releases or wills
  • Undisclosed or missing heirs
  • Instruments executed under invalid or expired power of attorney
  • Mistakes in recording legal documents
  • Misinterpretation of wills
  • Deeds by minors
  • Deeds by persons supposedly single, but in fact married
  • Liens for unpaid estate, inheritance, income or gift taxes
  • Fraud

An extended coverage policy may be requested to protect against such additional defects as:

  • Off-record matters, such as claims for adverse possession or prescriptive easement;
  • Deed to land with buildings encroaching on land of another;
  • Incorrect survey;
  • Silent (off-record) liens (such as mechanics’ or estate tax liens); and
  • Pre-existing violations of subdivision laws, zoning ordinances or CC&R’s.
  • Some advanced coverages may include:
  • Post-policy forgery;
  • Forced removal of improvements due to lack of building permit (subject to deductible);
  • Post-policy construction of improvements by a neighbor onto insured land; and
  • Location and dimensions of insured land (survey not required).

It is important that policy coverages differ from insurer to insurer and you should carefully review your coverages with your title provider.

What are the Steps in the Title Process?

An initial Request for Title Insurance is made with a recommended Title Insurance Provider. A preliminary report can be issued with the minimum of information; without even identifying the buyer or the terms of the sale. It shows the record title as it presently exists and is only an offer to provide insurance.

Generally, the title company will perform three searches: Property, Name, and Tax searches. From that information, a preliminary report is created.

Reinsurance – The title insurer will insure up to the total sale price or loan amount, and then employs another title insurance company to insure them. The premium paid to the re-insurance title company is deducted from the title fees; it is not an additional charge to the parties. Re-insurance is handled by the Title Department when requested by the proposed insured or is required based upon self-imposed or statutory title insurance limits.

Coinsurance -The proposed insured may only allow the title insurance company to insure up to a certain amount (i.e. not the total sale price or loan amount). The insuring company must employ another title insurance company to insure the remainder of the sale price or loan amount. When there is co-insurance, the customer is charged based upon each company’s filed rates for the portion of the total liability covered by that company. The co-insurance company may be chosen by the customer.

What are Common Ways to Hold Title?

Joint Ownership With The Right Of Survivorship: (JTWROS) A common way to own real estate, two or more individuals own one piece of property together. All joint owners own the whole property (in other words, not easily partitioned). When one joint owner dies, the other owner automatically inherits the decedent’s share (survivorship). The decedent’s Will won’t control how his or her share is distributed in this case, thus avoiding probate

Tenants In Common: Two or more individuals own a share of the property. The property is easily partitioned. For example, you own 50% (the east side) and I own 50% (the west side). Upon death, the tenant in common’s share is passed through his or her Will. The advantage is that this type of property is easier to divide/partition, but doesn’t avoid probate

Tenancy By The Entirety: This is similar to Joint Ownership with Right of Survivorship above, but it reserved for legally married couples. This type of ownership offers additional creditor protection for the married couple. This method of ownership avoids probate

Payable On Death (POD)/Transfer On Death (TOD) Accounts: These types of designations are typically found on a bank account or other financial account. An individual owns the property while he or she is living and has full control over it. The POD or TOD beneficiary only has access to the account upon the owner’s death. The advantage is that it passes directly to a person, and not through the Will, thus avoiding probate

Life Estate: Used for real property, allows an individual to have a right to live in a property while he or she is living, but another person retains ownership interest. Can be advantageous for seniors, and for several situations, but you must be careful in setting up a life estate.

What items are needed at closing?

An example of items to have completed prior to closing or in hand when you come to the closing:

Buyer
Buyer’s copy of purchase agreement

Cashier’s check(s) to make all payments

Proof of purchase of insurance for fire, casualty, etc.

Invoices for any unpaid taxes, utilities or assessments

Photo identification (passport, driver’s license, or state-issued identification card)

 

Seller 
Seller’s copy of purchase agreement

Invoices for any unpaid taxes, utilities, assessments, and latest utilities meter readings

Receipts for last payment of interest on mortgages

Bill of Sale of personal property covered by the purchase agreement

Any unrecorded instruments that affect the title

Proof of satisfaction of any mechanics’ liens, chattel mortgages, judgments, or mortgages that were paid prior to the closing

Photo identification (passport, driver’s license, or state-issued identification card