RE/MAX LAKE LIVINGSTON - TAFFIE POUNDERS

What Is Title Insurance?

  Answer: Every property has a history of ownership outlined among local public records.

 When a property is sold, this history is reviewed to assure that the current seller has title and the right to sell the property. The catch is that property records may not record all possible title claims. For instance, a prior owner may have been drunk, drug user, bigamist, or lacking the mental capacity to sell a property interest. A lien against the property may have been missed in the title search. Because of these and other problems, lenders require that buyers purchase title insurance (except in Iowa).

TITLE POLICIES

     There are two types of title insurance polices, the owner's policy and the lender's policy. When you buy your home you will arrange to buy title insurance which will cover your interest in that property. The limit of this owner's policy will generally be for the market value of the house at the time of the purchase. If you will be obtaining a mortgage on the property, your lender will require a lender's policy to protect their interest in the property. The lender's policy will be written for the amount of the mortgage. You may be wondering why two policies are necessary to insure the same piece of property or you may be wondering if you have to pay two separate title insurance premiums. In most cases, you will pay for the two policies together and this cost will be a discounted price.

     The owner's policy will cover losses or damages you suffer if it is found that the property belongs to someone else, or if there is a defect or lien on the title, if the title is unmarketable, or if there is no access to the land. Your owner's policy will have a section setting forth what is covered as of the effective date. It will guarantee that your ownership is free from defects or encumbrances, except any listed as exceptions in the policy, it will guarantee your have access to the land, and it will guarantee that you have the legal right to sell the property and convey marketable title to a new owner. If you buy the property for $100,000, then the owner's policy will be written for the full amount, $100,000.00.

     The lender's or mortgagee policy, on the other hand, protects the lender for the amount of their loan. If they loan you $80,000.00 on your house, then their policy will be for that amount only, $80,000.00. This type of policy is called the ALTA policy and is a standard policy approved by the American Land Title Association. It is issued to banks and other institutional lenders. In addition to covering the lender for the losses included in the owner's policy, the lender's policy includes coverage for any losses that the lender would incur if another creditor were first in line. If, for example, you were to take out a second mortgage and had managed to keep this second loan hidden while refinancing your first mortgage, the second mortgage would take first place in the event of a foreclosure action. The lender's title insurance policy would cover the mortgagee of the first loan if this were to occur.

     When an owner's and a lender's policy are issued at the same time, or concurrently, the premium is less expensive than if the two polices are issued separately. Since the title insurance company only has to search the records one time, and because a concurrent policy doesn't increase the risk that much, the concurrent policy premium will generally cost about one third less than two separate policies. If there were to be a loss, the title company would be liable to the owner for the amount of their equity, in this case, $20,000.00 and to the lender for their value of their mortgage, $80,000.00 for a total of $100,000.00. With $100,000 of coverage, the title insurer has covered both policies.

      The costs of the owner's and the lender's policies will vary depending on the location. The costs may vary from state to state, or county to county, or even from one company to another. Before choosing your title company or closing agent, inquire as to the prices they charge for a title insurance policy. Ask for the lowest rate allowed by law, and keep shopping for a lower rate if your closing agent will not negotiate on their fees.

 

 "Lender's" coverage is required by, well, lenders. It protects lenders against title defects up the value of the outstanding loan amount -- less and less each year. "Owner's" coverage protects against title defects up to the amount owed to the lender, plus the value of the owner's equity.Some policies go further and increase in value with inflation. Ask your closing source for information. Is owner's title insurance coverage a good idea? It is a one-time cost, and while it is likely to never be needed, if you do need it you will be elated to have it in place.

 

Your title insurance policy will list certain exceptions that will be excluded from coverage. This is a standard practice, but you should be aware of which items are exempted and therefore not covered. Owner's policies usually contain a list of some of the following standard exceptions. These exceptions may include:

·         boundary line disputes

·         easements or claims of easements not show in the public records

·         taxes or special assessments left off the public record

·         claims of people who turn out to be living in the house ( such as a prior owner's tenants) if their being there isn't a matter of public record

·         unrecorded mechanic's liens

·         mineral and/or water rights

You have the option of paying an additional fee to obtain "extended coverage" for any items you want included in your policy. Your title officer can tell you which endorsements are available. Other exceptions which are generally excluded from coverage include zoning, environmental protection laws, matters arising after the effective date of the policy, and matters created, suffered, or assumed by the insured. Some other exceptions could be subdivision and building codes, and matters known to the insured, but not shown on the public records and not disclosed to the insurer.

Your lender will normally request certain endorsements added to their lender's title policy. These endorsements will often insure against defects found only by inspection of the property, or by a survey, unrecorded liens and easements, mining claims and water rights, and right of parties in possession of the property. Title policies covering a condominium property will also require special endorsements added to the policy.

Go over your title policy carefully to see what is included and which items are to be excluded from coverage. If you find items of concern, discuss these with your escrow agent or closing attorney. Any changes to the policy of title insurance should be made before the close of escrow. It is possible to remove exceptions by means of special endorsements, but the title company must be aware of any special requests as soon as possible. Keep in mind that title insurance gives you coverage only up to a certain point in time for all events which took place during a previous point in time. A lien that is recorded after title insurance is issued, will not be insured against a claim. Some areas provide for your title company to issue inflation coverage. This is an optional coverage item, is relatively inexpensive and may be worth considering.

Your lender will normally request certain endorsements added to their lender's title policy. These endorsements will often insure against defects found only by inspection of the property, or by a survey, unrecorded liens and easements, mining claims and water rights, and right of parties in possession of the property. Title policies covering a condominium property will also require special endorsements added to the policy.