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:
- The buyer (or his bank) delivers a Cashier’s check or wire transfer for the balance owed on the purchase price.
- The seller signs the Deed over to the buyer, and delivers the keys.
- The Title Company registers the new Deed with the local land registry office.
- The seller receives a check for the proceeds of the sale, less closing costs and mortgage payouts.
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.
