Key Questions / Thing to Know:
- What is Title Insurance?
- Owner's Title Insurance Policy
- Lenders Title Insurance (or Loan Policy)
- Should you get Title Insurance?
- Do I need Title Insurance when I am Refinancing?
- How do I Get the Best Deal?
Title insurance is protection against loss caused by problems connected to the title to your property. Before you purchased your home, it may have gone through several ownership changes, and the land on which it stands went through many more. There may be a weak link at any point in that chain that could emerge to cause trouble. For example, someone along the way may have forged a signature in transferring title. Or there may be unpaid real estate taxes or other liens. Title insurance covers the insured party for any claims and legal fees that arise out of such problems.
There are two different types of Title insurance policies:
Owner's Title Insurance Policy
Owner's title insurance is usually issued in the amount of the real estate purchase. The owner's policy insures you, as a purchaser, that the title to the property is vested in you and that it is free from all defects, liens and encumbrances except those that are listed as exceptions in the policy or are excluded from the scope of the policy's coverage. It also covers losses and damages suffered if the title is unmarketable. The policy also provides coverage for loss if there is no right of access to the land. Although these are the basic coverages, expanded forms of residential owner's policy exist that cover additional items of loss. This type of insurance is usually purchased through your settlement company and lasts as long as you or your heirs have an interest in the property.
Lenders Title Insurance (or Loan Policy)
The lenders policy protects the lender's interest in the property up to the amount of the loan. It covers errors made in connection with the title search conducted for the specific transaction as well as any prior defects in the title. The buyer purchases the lender's policy and it is usually required as a condition of the loan. However, the lender's policy does not protect the buyer from any title claims. The policy remains in effect for the period of the loan, so if the property is sold or refinanced, a new lender's policy will likely be required.
Unlike other forms of insurance such as life, medical or homeowners; title insurance is not paid for annually, it has one payment for the term of the policy. The costs are usually based on the loan amount and can range from several hundred dollars to $2,000 on a medium priced home, depending on where you live.
The decision to receive title insurance is up to you. In 2003, according to ALTA, the industry paid out about $662 million in claims, about 4.3% percent of the $15.7 billion taken in as premiums.
Newly constructed homes are not immune from title issues because title issues derive from the land that has always had a long history. Title issues are as likely to occur with new homes as with older improved properties. Also, new construction carries the added risk that contractors and suppliers who have recently provided labor, materials or service have filed a lien against the property for nonpayment and that such lien is not apparent upon title examination. Therefore, as a rule of thumb, it is a good idea to consider getting title insurance regardless of the age of the property.
The lenders policy expires once you pay off the loan so when you refinance your lender will require lender's title insurance, even if it is the same lender. You will not need to purchase a new owner's title policy; the one you bought at closing is good for as long as you and your heirs have an interest in the property.
If it has been less than 10 years since you bought your house or refinanced, ask whether you are eligible for a reissue or discount rate.
When buying, you should be aware that most settlement companies represent only one title company; this is how the majority of their money is earned, because there is little competition between companies. Five Major title insurance companies comprise 91% of the market. These companies are Fidelity National Title Group, First American, LandAmerica, Stewart, and Old Republic. These companies are the companies that are represented by the settlement companies you would most likely be dealing with.
Keep in mind, however, that even though these five companies portion themselves out to settlement companies, not all settlement companies offer the same rates. They have the liberty to make deals where they deem it necessary. Because of this, you should call more than one settlement company and find out how much they charge for coverage that you are looking to get. Rates are negotiable in many cases - especially with smaller settlement companies theoretically, buyers have the ability to shop for title insurance and to negotiate the rate. Do not forget to add all the fees that a settlement company charges along with the premium you will be charged for title insurance in order to determine which company gives the best overall deal.
--Your Financial Ally