For many homebuyers, especially new buyers, the process of moving forward to settlement or closing on a property can be confusing, especially as it relates to Title and Title insurance. Buyers can understand home inspections and mortgage commitments but Title can be a mystery to many. We have found that many buyers do not understand what title insurance is, how it works, what a title company does, the different types of title insurance and associated buyer title costs.
In this article we share our insights into title insurance from a property buyers perspective.
This is part of an on-going best in class series of helpful real estate articles by Nick Santoro and Joe Santoro of Personal Property Managers who service Pennsylvania and New Jersey and specialize in real estate, home content downsizing, property management, estate sales and home watch services. During this challenging time in the Corona Virus and COVID-19 era, we help families buy and sell properties and tend to their property needs by providing a true one-stop resource. We are focused on making life just a little easier for families during often difficult times. With Personal Property Managers, one call does it all.
Buying a home often entails also buying various types of insurance to protect your property. One type of insurance you will need is called title insurance.
When you buy a home, you take title to it and establish legal ownership. A title insurance policy protects you against the possibility that someone else might have a claim on your home. In essence, it ensures that a homeowner and their lender will be okay in the event that the seller or previous owners didn’t have absolute ownership of the house. We know that this may sound crazy, but sometimes it turns out that the homeowner is not the only one with rights to a home.
If you need a mortgage to buy real estate, your lender will likely require you to buy a title policy from a title insurance company. Although it’s a cost home buyers incur, getting a title policy from a title insurance company is critical to establishing peace of mind.
What is title insurance?
Holding a title insurance policy means you and your mortgage lender are protected against any financial loss or title issues due to liens, disputes between prior owners over wills, clerical problems in courthouse documents, or fraudulent claims against the property or forged signatures.
A title search will be performed by your title or settlement company to uncover any issues with your title that could give you legal troubles down the line.
The title company then insures your claim to the property’s title. If anything is missed during the search or there are lawsuits questioning your legal ownership of the property after closing, your title insurance policy will cover the costs of resolving the problem.
In summary, a new owner must be able to own the property free and clear, which means that any other claims to ownership must be resolved before a new transfer of ownership can take place. Some common title problems might include an ex-spouse whose name is still on the deed, or financial claims like a lien or unpaid taxes on the property.
In short, a title company is responsible for making sure that the title to a property can be transferred from the seller to the buyer without issue.
Why a title search is required with a mortgage
When getting a mortgage to buy real estate, you’ll find that most lenders will typically require that you get a title search before you close the deal with your escrow company. Basically, this would mean you’ll have to hire a title company to search local records on your property. Some of the issues a title company looks for are:
While most homeowners will never need to use their title insurance, its existence offers protection against a potentially aggravating and very expensive financial loss.
Lender’s title insurance vs. owner’s title insurance
There are two types of title insurance: lenders and owners. Almost every lender will require you to pay for a lender’s title insurance policy. This protects the lender not you from incurring any costs if a title dispute pops up after closing.
Owner’s title insurance is usually optional, but it’s highly recommended. Without it, you’ll be left footing the bill for all the costs of resolving a title claim, which could be thousands or even hundreds of thousands of dollars. Even though it can feel like you’re hemorrhaging cash when you’re closing on a house, a title insurance policy is one of those things that can save you money in the long run.
Nick Santoro says that when you consider the benefits of title insurance and some of the unique aspects of title insurance relative to other kinds of insurance, it is clear why it’s risky to purchase real estate without a title insurance policy.
You can purchase basic or enhanced owner’s title insurance, with the enhanced insurance policy offering more coverage for things like mechanic’s liens or boundary disputes.
While your title insurance covers you for things such as mistakes in the legal description of your property or human error, be aware that it will have some exclusions particularly in cases where violations of building codes occur after you bought your home.
How much does title insurance cost?
The average cost of title insurance is around $1,000 per policy, but that amount varies widely from state to state and depends on the price of your home.
Title insurance premiums can vary from a couple of hundred dollars to a couple of thousand dollars. Some factors that can affect the cost of your premium include the title search, examination, and expected cost of any title defects.
In general, each policy price is based on the purchase amount of the home or the total amount of the loan explains Joe Santoro.
Unlike other types of insurance, a title insurance policy is paid with a single premium during escrow while closing for your mortgage. If you’re buying a real estate resale or refinancing, you may be eligible for a reissue rate, which could offer a substantial discount off the regular premium because the title policy is already in effect, and the title research has already been completed.
What are the responsibilities of a title company in a real estate transaction?
Here’s a rundown of the various roles and responsibilities fulfilled by a title company in a transaction:
Conduct a title search:
Once a title company receives an executed agreement of sale, it performs a title search. During this search, it looks for anything that could impede the buyer’s rightful ownership of the property. Specifically, it looks for any existing mortgages, liens, judgments, unpaid taxes, and restrictions due to easements.
Order a property survey:
At the same time, the title company will likely order a property survey from a third-party provider. This survey defines the boundaries of the plot of land where the home is located. It also determines whether the home fits within those boundaries or if there are any encroachments that may affect the new buyer’s ownership claim.
Put together a title report:
After the title search and property survey have been completed, the title company puts together a title report, which is also known as a title abstract. This report spells out the results of the title search, including any issues that need to be resolved before the title for the property can be transferred to a new owner.
Issue title insurance:
Once any existing issues have been resolved, the title company issues a title insurance policy. In particular, title insurance protects the recipient from financial harm in any legal issues that result from a dispute over the ownership of the property.
Hold escrow:
In addition to providing a title search and insurance, many title agents will also serve as escrow agents. In real estate, the escrow agent is a neutral third party that is in charge of holding any funds that are supposed to be exchanged between the parties in the transaction.
Typically, an escrow agent will be in charge of holding the buyer’s earnest money deposit. However, if any other funds need to be exchanged after closing, such as any negotiated funds for repairs, the escrow agent will hold those as well.
Facilitate closing:
We like to say that the title company acts as the quarterback of the team as it relates to the property settlement. They facilitate the property settlement. The title agent will make sure that all the paperwork has been signed and that the funds have been properly disbursed.
Can you shop around for a title company?
When it comes to title insurance, buyers usually wonder if they can shop around for a title company. The answer to this question depends on where you live. In most cases, it does make sense to shop around for title insurance. However, in some states, shopping around does not make much of a difference.
Pennsylvania, for example, is what’s known as an all-inclusive title state. Title companies in the state must charge one all-inclusive fee for their services. This fee is generally uniform across the board. In other states, title companies can charge separate fees for each of their services.
If you don’t live in an all-inclusive state, shopping around helps you ensure you are getting the best rate. That said, when you solicit estimates from title companies, it’s crucial to have a clear idea of what services are included in your quote. That will help you to ensure that you’re making an apples-to-apples comparison between companies.
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For more information on real estate or home downsizing please contact Nick Santoro or Joe Santoro of Personal Property Managers at 215-485-9272 or 908-368-1909. Personal Property Managers specializes in helping home owners transition from their home of many years into a new community. Personal Property Managers services Pennsylvania and New Jersey and offers downsizing services, estate sales services, home staging, discount full service real estate services via its association with EveryHome Realty. Learn more about Personal Property Managers from our recent News Stories.
