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Let’s get started by exploring what title insurance is, how it protects your largest investment and why it should matter to you. We hope to answer your questions along the way. Remember, you can always give us a call at 410-263-7336 or send us a message.
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What is Title Insurance?
There are two types of title insurance policies – an owner’s title insurance policy and a lender’s title insurance policy. Most lenders will require you, as the borrower, to purchase a lender’s policy as a condition of your financing. It is important to understand that the lender’s policy protects the lender – it does not protect you, as the homeowner. An owner’s title insurance policy however, protects you, as the homeowner, from loss if a property ownership dispute occurs after settlement. Prior to settlement, the title insurance company searches public records, such as liens, claims, deeds, tax records and maps, to make sure there are no problems in the title’s ownership and history for the property you are buying. . If a problem should arise after settlement, the terms of the policy define covered and excluded losses. The policy takes effect on the issue date and covers defects that arise prior to your ownership. The fee for title insurance is usually included in your itemization of closing costs from your lender, and it is a one-time fee.
What Is Covered By An Owner’s Policy?
An owner’s policy protects you, the buyer, from issues that might emerge after you close the sale. Example of issues may include human error, forged documents, undisclosed or missing heirs, and incorrect legal descriptions. Only an owner’s policy will protect you from personal loss, such as legal expenses for a dispute after the sale. There are no annual premiums with owner insurance. You pay when the policy is issued. It insures you for as long as you own the property. This protection is limited to the face amount of the policy, which is usually the market value of the property when you buy it. It does not cover increases in the value of your property. If you want to cover the increased value of your property, you may buy additional coverage through your title insurer.
What Is NOT Covered By An Owner’s Policy?
Title insurance does not protect you from losses caused by problems you created or losses not directly related to resolving or paying the claim. It also does not cover losses listed under your policy’s exclusions or exceptions. It is a good idea to discuss these exceptions with an attorney before you close any real estate purchase. Some non-covered sources of loss may include:
- An unrecorded title defect you knew about
- Violations of building and zoning ordinances
- Restrictive covenants limiting how you may use the property
- Discrepancies, conflicts or shortages in area, boundary lines, encroachments, protrusions or overlapping of improvements
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Still, smart consumers are looking at two factors: quality of insurance and of the title search, says Ronald Mann, law professor at Columbia University in New York. The goal is to find a title company or attorney that will do a thorough search and an underwriter that will be there in 10 or 15 years if there’s a problem.
Even in a regulated environment, you might be able to save money, says Orlando Lucero, vice president of Stewart Title of Albuquerque LLC. While insurance costs may be regulated, ancillary expenses like wire transfer or courier fees could add up, he says. So ask about the complete transaction price, not just insurance costs.
In unregulated areas, the difference in price “could be wide — 10 percent, 20 percent or more,” says Frank Pellegrini, president of Prairie Title Services Inc. in Oak Park, Ill. To find out if you’re in a regulated area, ask your lender or state insurance department.
The average policy is “pretty standard,” says Mann.
Owner’s policies typically protect against a number of contingencies, like fraud, forgery, undisclosed heirs and spousal claims, says Pellegrini.
If you want additional coverage, that could boost the insurance cost. For example, a restriction endorsement could protect you if the construction of your home inadvertently violates the restrictions of your subdivision, Pellegrini says.
Or, your lender could require additional insurance on the property or mortgage. For instance, an ARM, or adjustable-rate mortgage, endorsement would guarantee that the lender is first in line for repayment if the home goes into foreclosure, says Pellegrini.
That doesn’t mean if the buyer pays, he can’t haggle for all or part of his costs. “It can always be negotiable,” Yohe says.
If you’re buying the owner’s and lender’s policies from the same company, “in many cases, there’s a substantial discount,” says Lucero.
Be wary if the seller is pushing his title company, he says. A title search is meant to find errors before you buy. Use the same company that your seller did years earlier and odds are you’ll get the same results, Mann says. Often, searchers aren’t using actual records but summaries or extracts of those records. A fresh set of eyes (and extracts) could unearth problems, allowing you to fix them before you buy, he says.
“The lender’s interest dovetails with yours in getting these things done well,” Mann says.
The lender is guaranteeing a large amount of money based on the assurance that the property you’re using as collateral is really yours.
You can also research the underwriter and title company or attorney online to see what past customers are saying about their services.
Every business has its bad apples. In very rare instances, a title insurance agent has issued policies but pocketed the premiums instead of forwarding them to the underwriter, so consumers weren’t covered, says Joseph W. Eaton, co-author of “The American Title Insurance Industry.”
One easy solution: Contact your underwriter directly and ask for a copy of your policy, he says.