About Title Insurance
When you are buying a new home, you would come across the term called Title insurance with a cost associated with it.
But we cannot talk about types of title insurance without first talking about Title.
The term Title refers to a person or entity’s ownership of property. Title insurance is basically as the name implies, insurance for the property’s title.
The title insurance will cover any forgery in the deed or any lien on the property that you were not disclosed about at the time of property purchase. In this post, we will understand what are the types of title insurance.
What Are The Types of Title Insurance?
You have two types of title insurance, an owner’s policy which protects the owner, and a lender’s policy if you are getting a mortgage, which protects the lender or the bank that is lending the money to you so that you can purchase that property.
Since we know that there are two types of title insurance policies, let us know the difference between them.
I - Owners Title Insurance Policy:
The owner’s title insurance policy is coverage to the owner of the property. For example, you are purchasing a home and you are getting title insurance that insures their ownership of the property.
But what does that mean? So the title insurance makes sure that there are no other encumbrances or liens that can possibly hinder your ownership of the property.
And also make sure that there are no other claims to ownership of the property like heirs, divorces, or any other person that could claim ownership on the property above you.
A common misconception about Title insurance is that people think that it covers the house.
That is actually not true. It covers the land. A house can be built any time on a piece of land that could be brand new.
However, the land on which the property is built on been there for hundreds of years.
If there is any claim coming up to your ownership, the Owners Title Insurance Policy will help you to cover it for you.
II - Lenders Title Insurance Policy:
When you are getting a mortgage your lender or the bank will require assurance that there are no liens, judgments, or mortgages that take precedence over their mortgage.
So the lenders’ title insurance policy will cover the lender in the event there are any such claims pop up post the closing.
The interesting thing about the lenders’ title insurance policy is that a lot of owners think that they have the coverage too because their lender has that policy.
That is not true at all. That policy does not cover the owner it only covers the bank.
Conclusion
Out of these two types of title insurance policies, the owner’s policy is something that you only need to pay once at the time of purchase closing.
Whereas the lender title policy needs to be paid every time you refinance your property so that the new lender is protected with a lender’s title insurance policy.
Your home is possibly one of the largest investments you will ever make in your life. As a buyer, you will want to protect your investment as well.
This is why these two types of title insurance policies are included in your closing process.
The two sorts of title protection arrangements can not just compensate substantial claims and legitimate fees to guard against hidden titles issues but also help to diminish ownership risks by giving a careful title search before either policy is given.
There are multiple custom options regarding the title insurance purchase. In some areas, it is standard for the seller to purchase the owner’s policy for the buyer.
Whereas, in other areas, the owner’s policy is recommended buyer purchase. Your real estate agent, escrow officer, or settlement officer would be in a position to help you understand these two types of title insurance policies in more detail.
About Torrens System
Being a homeowner is not an easy task especially when you are surrounded by confusing real estate jargon.
Many real estate jargons are simple to understand, but some need more effort to understand. One such topic that we will discuss in today’s post is the Torrens system.
What Is A Torrens System?
A Torrens system, also known as a Certificate of Title, is a document that gives the registered owner undisputed ownership of real property.
The certificate acts as the ultimate authority on the ownership of the property, and its legal authority makes registration irrelevant.
This type of property law was first used in Australia in 1858 when Sir Robert Torrens from South
Australia began to correct the weaknesses in the registration system at the time. After the old system caused great losses in land grants, Torrens designed the new system, where the register of all the lands in the region recorded the transfer of rights and titles of different landowners.
Being legally registered, landowners have absolute and irrefutable rights to their property, preventing confusion about who owns the property and holds the title.
A quick search of the land registry can bring up the name of the legal owner of the property.
Naturally, land registration is a key element of the Torrens certificate. In this complete record, each property is assigned a number, and, in addition to the owner’s name, the portion of the property and its territory, as well as a record of all legal matters related to the property.
It is the responsibility of the registrar to maintain this list of properties and update any changes such as a change in ownership.
All the registrations were manually documented on paper; however, with the introduction of computers and technology, all the records are now maintained on a database system.
What Are Different Principles Of Torrens System?
There are three principles that the Torrens certificate is based on
1 - Mirror Principle
This principle indicates the current details of the title on the property. It will display the name of the current holder of the title and all other registered interests in the property like easements, liens, and mortgages. It will not display any zoning details on the title.
2 - Curtain Principle
The curtain principle means that the buyer does not need to search the previous titles and avoids a lengthy process. It will provide a certificate of title that acts as ownership proof.
3 - Insurance Principle
This principle guarantees the accuracy of the title registration. If there is any error made by the registrar while updating the title information, the title holder will receive the compensation required to get it corrected.
What Are The Pros And Cons Of Torrens System?
The Pros:
- Acceptance of titles in areas where there is complete supervision of the first transfer process.
- Compare to the title abstract, Torrens certificate of title is easier to work with.
- Registration disallows possession of property by adverse action against the registered owner.
The Cons:
- Accepted in limited states in the country.
- The cost of the process is higher initially.
- The system is complicated and time-consuming.
- Lack of qualified staff leads to inconsistency in records and other issues.
- There is a possibility of errors while recording by the registrar.
Conclusion
Though the Torrens system could be one of the efficient ways to update titles to the property, it is still not accepted by all the states in the country.
In the U.S. eleven counties use this system for updating titles on the property which are New York, Washington, Illinois, Georgia, Virginia, Massachusetts, North Carolina, Colorado, Minnesota, Hawaii, and Ohio.
If you are not sure about the system being used in your state, you can get in touch with your trusted real estate agent to know more about the Torrens certificate in detail.
About Title Company In Real Estate
When you are in the process of buying or selling a real estate property you might have multiple contact points at every step of the process.
From your real estate agent to the closing agent, all point of contact has their significance in the home buying process.
In this post, we will understand the roles and responsibilities of one of the most important teams that help you behind the curtains in your buying process, ‘Title Company’.
What Is A Title Company?
A title company is a neutral party that has many responsibilities during a real estate sales transaction.
The title company enters the process once the buyer and the seller sign the sales contract.
It holds the earnest money deposit in escrow that the buyer makes after signing the sales contract.
It also conducts the title search to ensure the property title is clear and there are no claims, liens, or any other issues with the ownership of the property and help the buyer and the seller at the time of closing.
What Does A Title Company Do?
A title company has 3 key responsibilities.
I - Title Search:
A title company would be responsible to do a title search on the property in question.
This will help the buyer and the seller know if there are any existing and hidden liens or claims against the property or anything that challenges your right to own the property.
In this process, the assigned company will go through public records to verify the seller’s ownership and determine if any issues could impact the buyer’s ownership in the future.
The title agent or the escrow officer will conduct a thorough search through county records and other sources to ensure that the seller has the right to sell the property.
The report provided by the title officer will include the chain of ownership, pending claims, liens against property, judgments, surveys, encumbrances, easements, etc. so that all the issues are cleared before the property is transferred to the buyer.
II - Title Insurance:
They will also provide a title insurance policy to protect the buyer’s ownership rights.
Just like you need insurance for your car or home for the future, title insurance will protect you from the past.
If there are any claims or liens that were missed during the title search, your title insurance will cover the same.
This is a one-time premium that the buyer pays at the time of closing along with other closing costs. This will protect your ownership of the property for the length of time you own the property.
III - Escrow and Closing:
Once the sales contract is signed, the title company will hold the earnest money deposit paid by the buyer in an escrow account till the closing.
Before closing the title company will gather all the documents in form of a package from the lender also known as closing disclosures.
Once the package is received from the lender, they will make sure all the numbers on the packages are matched with their numbers.
At the closing, they will produce the final package for you and the seller to sign in presence of a notary and ensure that the money is collected from the buyer to pay off the vendors.
Finally, they will ensure that the signed copy of this package is sent to the lender and buyer.
Conclusion
Title companies play a very crucial role in the home buying process. They make sure that the title of the home is clear for transfer, maintain an escrow account till closing, and help in closing the transaction.
You as a buyer have an option to choose your title company for your real estate transaction.
You have to make sure that you have a good and reputable title company for your real estate transaction for a smooth process.
About Owner's Title Insurance
In the journey of home buying, many times people are only saving up for their down payment and are not aware of many things that they will have to purchase.
An owner’s title insurance is one of the most important purchases that a purchaser must make.
Let us understand what is owner's title insurance
While buying a house, a buyer needs to take care that they are not facing risks. The old homeowner’s paperwork may not have been correct, or there could have been some fraudulent activity related to the property.
With an owner’s title insurance, the homeowners are protected against any problems related to their deed or property ownership that might come up after they buy a house.
The various potential issues are:
- A deed filed incorrectly: The mistakes that could happen while making the deed, like it is not recorded in the buyer’s legal name, ownership of the property could be unclear.
- Information on the deed could be false: like a forged signature or details about the property are altered.
- Mortgage frauds: The past owner had actually not been paying the mortgage but could have made it look like a mortgage was paid leading the past lender to foreclose.
- Liens: The statements of debt filed against the property are liens. These liens could be from a homeowners association to whom a fine wasn’t paid, a contractor who had completed some work but wasn’t paid, or from the government because the property taxes weren’t paid.
- Encroachments: A owner’s title insurance protect the homeowner if a neighbor builds a fence or outbuilding on land because the property line isn’t clear, this impacts the property rights and protects the owner against an existing improvement that encroaches on their property.
- Easements: Someone else, like a utility company, may have rights to a part of the owner’s property, but that’s not discovered during the buying process and it gets cleared with the title insurance.
In all these cases, it is possible for a third party to try and lay claim on the property. With title insurance the risk to a buyer who wasn’t aware of an existing problem reduces.
Even if a title search is completed before the purchase of the property, an issue may pop up any time and it may not show until after ownership of the property.
The difference between lender's title insurance v/s owner's title insurance
The lender may make the borrower purchase a lender’s title insurance policy when getting a mortgage.
If the ownership of the property is contested this title insurance will protect the amount they lent out.
A lender’s title insurance policy pays the lender the outstanding amount they’re owed when someone else claims ownership of the property, and if it’s legally upheld.
But a lender’s title insurance doesn’t protect the owner or their investment. If a claim to ownership comes up, the new owner will have to pay for legal proceedings.
The owner could also lose the money they have spent on their down payment and subsequent mortgage payments. Hence a separate owner’s title insurance policy is a wise purchase.
As long as the owner has the home the more valuable the Owner’s title insurance becomes.
As the owner continues to pay their mortgage, they own a greater percentage of their property and have more to lose.
A title claim can come up at any time, even after decades of being in the house. One should have an owner’s title insurance policy if they plan to stay in their home for many years.
Many times owner’s title insurance is often confused with the lender’s title insurance.
A lender’s title insurance is usually required for the purpose of getting a mortgage loan.
So if a question is asked as to, is owner’s title insurance is required, then the answer is no, there’s no law requiring the owner to purchase any additional policy to cover their potential losses.
Who is responsible for a title insurance policy?
In many cases, the new buyer could be in charge of covering the cost of the owner’s title insurance policy.
While in some states of America, it is the seller who is responsible for purchasing a title insurance policy for the new owner.
In a few other states, the purchase price of the policy is negotiated and divided among the buyer and seller. A real estate agent is the right person who can tell you how it works in your state.
What all does the owner's title insurance cover?
An owner’s title insurance policy is a one-time cost for protection against any financial loss related to a problem with the title.
If the new owner is sued by anyone claiming that their deed is fraudulent and the property belongs to them, the policy covers all the legal fees and court costs. If the state claims for past unpaid property taxes, the policy covers those too.
Though these are issues that one would have no way of knowing about and are not responsible for causing, yet it could cost a lot of money to fix them.
Pros And Cons of owner's title insurance
Pros of owner's title insurance:
- Peace of mind: The homeowner doesn’t need to worry about having to pay out of pocket for a problem related to the legal ownership of their property.
- Compared to the risk involved the cost is small: The price for an owner’s title insurance policy is relatively a small percentage of the home’s purchase, but the possible risk it covers is huge with the legal costs and the complete loss of the home.
- A brand new home without any stress: Usually legal disputes can arise on ownership of the land where a subdivision or condominium structure is constructed. The mechanic’s liens from a contractor may also be connected to the property in case of old unpaid work.
- If it is a very old home: With more past owners the opportunities for problems are higher. The possibility past easements or surveys that one is not aware of could put them in trouble with an owner’s title insurance getting sorted out.
- The satisfaction that a thorough title search is done: The title companies are putting their money on the line, so they will be extra alert and make sure the title is clean.
Cons of owner's title insurance:
- Cost: The owner could pay a large amount of money on the low chance of using the policy, so it may look like a wastage of money.
- Do not plan to own the property for long: If the owner is flipping or living temporarily in a home they have bought, it may not be worth buying title insurance. They can check for a binder’s policy for short-term which covers 1 to 3 years.
Other things to know about the owner's title insurance
A title insurance policy can cover legal expenses and liens, along with the loss of homeowners’ down payment or monthly mortgage payments.
Even if they have only put little or no money down, they may need a lawyer to help them get a forgery on the deed taken care of.
There is no way of knowing that information on the deed was fraudulent, so to get it sorted out they have to pay legal fees for help.
The owner might consider a title insurance policy if they don’t anticipate having the funds to easily pay legal expenses.
Many times when someone is buying a home from their parents, who got it from their parents, they may think there are no hidden surprises. But many a time old easements and other issues can come up from decades ago.
Conclusion
Title insurance is a type of insurance protecting homeowners against claims on the title to the property.
If after the purchase there are disputes over title ownership, the insurance policy pays for all the legal fees to resolve them.
Title insurance is very different from other types of insurance that help cover future mishaps, it protects the policyholder from any past title discrepancies from the previous owner that might be uncovered during or after the purchase of the property.
Seek help from a lending advisor to answer all the questions about buying a home and guide you to decide about title insurance, and the costs you’ll pay to your lender.
About Title Insurance
If you are looking to buy a new home, on your loan estimate, you would see something called Title Insurance.
Title insurance is essential and can protect you from potential policy defects when you are buying a home. In this post, we will learn more about title insurance in Texas.
What is Title Insurance?
Title insurance is best defined as a policy that protects property owners and lenders from losses that could result from disputes over ownership of the property’s title.
Basically, you want to make sure that the seller truly has the right to sell a piece of property and that when the transaction closes that you as a home buyer would actually own it.
Title insurance is extremely important because it will protect you from title hazards that could threaten the financial investment that you made by purchasing your home and any other property.
It also protects the lender’s investment as well.
What is an Owner's Policy?
An owner’s policy is a form of insurance that guarantees that a buyer has the right to the property, meaning they legally own it. It usually covers the cost of any legal fees that arise if you have to defend your claim.
So having an owner’s policy is very crucial because it will protect in the future. The policy ensures your claim to the property and mentions that the said title company has provided you with an owner’s policy.
It will help cover you if anybody tries to challenge your claim to that property.
What is a Lender's Policy?
The best way to look at this is from the vantage point as though you were the lender.
A lender’s title policy is going to protect the benk from another lending institution that issues up the Buyer’s mortgage from any losses resulting from disputes over ‘who owns the property’.
The policy will cover the amount of the loan, and the cost is based on the amount of that loan. Most lenders will require this coverage which ends when the mortgage is paid off.
Is there a monthly premium?
You do not have to pay a monthly premium for your title insurance in Texas. What will happen at the closing is that the policy itself will be paid for at the time of closing.
The coverage would be in the name that is on the title for that property. That coverage will last as long as you own that property until you transfer it on to someone else’s name you are covered.
What is covered by the title insurance?
There are eight core things that title insurance covers.
1: Fraud: Fraud associated with the title ownership.
2: Liens: Any liens existing against the property at the time the policy was issued.
3: Mistakes in Public Records: The errors in public records that are not caught at the time of sale.
4: Inaccurate / Conflicting Wills and Trusts: Any inaccurate wills or trusts that were made related to the title.
5: Heir Disputing Ownership: Any missing heirs who suddenly appear and claim to own the property.
6: Forged Deeds and Documents: Misfiled or forged deeds or other documents.
7: Undiscovered Errors/Flaws: Any errors or flaws in titles that are not discovered in the initial title examination.
8: Loan Amount and Interest Cover: The lender’s title insurance covers the amount of the mortgage loan and protects the lender’s interest in the property if any of the first seven situations were to occur.
Who Pays for Title Insurance in Texas?
In Texas, the choice of a title company is freely negotiated between the Buyer and the seller. In the past, the seller has traditionally paid for the title policy, due primarily to the seller’s contractual obligation to pass good title to the purchaser.
However, with the market moving to a ‘Seller’s Market’ we are seeing more Buyers offering to pay for this policy since this enhances the strength of the offer in competing for offer situations.
What is a Title Search?
The title search is a process to make sure that the seller is the legal owner of the property, and there aren’t any outstanding claims against the property.
How Much Does Title Insurance Cost?
The title insurance cost depends on how much money that property is being sold for. Everything would be calculated from the ultimate sales price of the home in relation to how much that title insurance policy would cost.
Conclusion
It is critical for you to know these things about title insurance before you enter into real estate transactions. Get in touch with your trusted real estate advisor to get details about your title insurance.
Your trusted mortgage loan officer would also be in a position to give you more information on your title insurance in Texas.