What
is Title Insurance?
Title
Insurance is protection against loss arising from problems connected
to the title to your property.
Before
the purchase of your home, it is possible it had numerous
ownership changes and the land on which it stands went through
more. It is possible that somewhere in the history of the
property, someone could have forged a signature in transferring
title. There could have been unpaid real estate taxes or other
liens.
The
insured party is covered by title insurance for any claims
and legal fees that arise out of such problems.
WHO
NEEDS TITLE INSURANCE?
An
Owner in order to sell and a buyer (if a mortgage is going
to be used to purchase).
When
a home is about to be sold, a title company generally will
conduct a title search. The search will determine who is listed
on the deed as an owner of the property. A title search consists
of a review of records of the clerk of courts and other municipal
and county agencies. The search will reveal any encumbrances
on the mortgage, such as liens, mortgages, judgments, easements
or taxes (a chain of title). Any of these items will need
to be resolved prior to the sale of the property and before
the title deed transfers to the new owners. If there is a
judgment against the owner, the judgment must be satisfied
prior to the sale.
An
owner/seller, often times pay for an owner policy as part
of their obligation to deliver good title to a buyer. In some
areas, borrowers purchase it as an add-on to their loan policy.
An
owner’s policy is issued for the full value of the home.
When an insurer issues an owner’s or lender’s policy,
that indicates the title has been searched and nothing has
been found to prevent the issuance of such policy. However,
no search is 100% reliable. If someone comes forth and claims
an ownership interest, the title company will defend the title
and if necessary pay any losses incurred as a result. That
is why an insurance policy is issued.
If
you need a loan (mortgage) to purchase property, your mortgage
lender will require a loan policy equal to the amount of the
loan. This loan policy will exist for the life of the loan.
This loan policy protects the lender but you pay the premium,
which is a single payment made upfront.
The
required loan policy protects the lender up to the amount
of the mortgage; however, it does not protect your equity
in the property.
Title
insurance protects against losses from claims that arose prior
to the date of the policy. Coverage ends on the day the policy
is issued and extends backward in time for an indefinite period.
Any changes in title from the date of policy forward are not
insured by title insurance.
An
Owner’s policy or owner’s protection exists as long
as the owner or their heirs have interest in or any obligation
with regard to the property. When the owner sells the property,
a lender will require a purchaser to obtain a new policy.
This new policy will protect the lender against any claims
or liens that have come against the property since the date
of the previous policy.
Title
insurance does not protect against false claims that arise
after your purchase of property.
If
you refinance, the lender will require you to purchase a new
loan policy as the existing loan policy terminates when the
current mortgage is paid off. The lender will want coverage
for any title issues that may have arisen since your purchase
of the property. A title search will uncover any liens, judgments,
etc. and you will have to pay it off as a condition of the
refinance.
Escrow
Accounts are provided by the title company so that neither
the seller or buyer can claim the money was mismanaged or
used for other purposes than closing the deal. Title companies
act as third parties in this case. Escrow Closings…..Escrow
Accounts…..no co-mingling of client funds with title
company operating funds.
RESPA/The
Real Estate Settlement Procedures Act
This Federal Law entitles the individual homeowner to choose
a title insurance company when purchasing or refinancing residential
property.
HUD-1
Settlement Statement
Real
Estate Closing with the Title Company or attorney.
If you are buying a home, the closing will typically take
place with your title company representative or attorney and
your lender may or may not be present.
The seller usually closes their side of the transaction prior
to the buyer closing. However, this is not essential. Rarely
does the seller and buyer meet at the closing.
During the closing, the buyer will be reviewing and signing
several loan papers. A closing agent and/or attorney will
conduct the closing and should be able to answer most questions.
If the loan officer is also present at the closing, they can
answer questions. In the event the loan officer is not present,
the closing agent and/or attorney can contact the loan officer
to clarify documents.
The HUD-1 Settlement Statement (also known as closing statement)
is one of the documents the buyer and seller will sign. This
document provides an itemized listing of the final fees charged
in connection with the sale and/or purchase of the property
and will also include a listing of any fees related to the
transaction between the buyer and seller. If the loan will
be a refinance, the settlement statement will show the pay
off amounts of any mortgages that will be paid in full with
the new loan.
The TIL Truth-in-Lending document provides full written disclosure
of the terms and conditions of a mortgage, including the annual
percentage rate (APR) and other fees. It is exactly the same
as the TIL you received immediately after your initial application,
except it has been updated to reflect the final rate and fee
information. Federal law requires that all lenders provide
you with this document at closing.
The NOTE is the document you sign to agree to repay your mortgage.
The note will provide you with all of the details of your
loan including the interest rate and length of time to repay
the loan. It explains the penalties that you may incur if
you fall behind in your payments.
The Mortgage/Deed of Trust is a document that pledges a property
to a lender as security for repayment of a debt. It means
you will give your property up to the lender in the event
you cannot make the mortgage payments. The Mortgage restates
the basic information contained in the Note and details of
the responsibilities of the borrower. In some states, the
document is called a Deed of Trust instead of a Mortgage.
In
addition to signing the documents at closing several more
things happen:
When
Closing in Escrow a Title Company holds the money and the
signed Deed, and arranges for the transfer. This is done so
that the seller can give up ownership of the property, and
the buyer can hand over the payment, without both parties
having to be present at the same time. Escrow ensures an orderly
transaction, or if something goes wrong, an orderly termination
of the agreement.
A
closing (settlement) can occur with a title representative
and/or attorney wherein all funds listed on the settlement
statement (in form of certified or wired funds) and the property
exchange takes place, and the deed is then recorded by the
company.
If your loan is a refinance, Federal Law requires that you
have three days to decide positively that you want a new mortgage
after you sign the documents. This means the loan funds will
not be disbursed until three business days have passed.
Who must attend the Loan Closing?
If you cannot attend the loan closing, you can execute a Power
of Attorney so that a trusted person can sign documents on
your behalf. In some cases, documents can be mailed in advance
so that you can sign and forward them to the closing agent.
