What Is Title Insurance?
Title Insurance is an insurance policy issued at the time of closing to protect you (and your lender) against undetected or undisclosed defects in the chain of title often referred to as “hidden risks.” Hidden risks are rights or claims that are not shown by the public records and not discoverable by a diligent search and examination of the documents. Examples of hidden risks would be forgery, incompetency or fraudulent impersonation. Some policies give coverage against matters that may impact you in the future called “post-policy” coverage. We highly recommend you obtain “post policy” coverage insurance as the difference in premium is only 20%. See the comparison chart (PDF) detailing the coverage between the two different types of policy an owner can obtain.
Who Issues A Title Insurance Policy?
We do. As a licensed title insurance agent, Settlement Ink will issue both the lender and owner’s policy from Fidelity National Title Insurance Company (PDF). All lenders require title insurance for the loan amount. You would obtain an owner’s policy for the purchase price for a small premium above the lender policy. Settlement Ink is an agent appointed to issue policies for Fidelity National Title Insurance and licensed in the state the property is located in as well. See our licensing information here (LINK).
What needs to be done to issue a title insurance policy?
Various public records are searched for a period of 60 years to reveal the existence of recorded matters against the property, the sellers and even to a limited extent, the buyers. The title search will reveal many things about the property many that are considered acceptable matters and some will be matters that need to be resolved. Examples of an acceptable title document would be recorded covenants or easements on the property. They could govern house size, house type and or be access easements for necessary utilities. An example of a title matter that will need to be resolved is unpaid property taxes, tax lien, a judgment or the outstanding mortgage lien. All of the matters to be resolved can generally be satisfied with the proceeds of sale. In rare cases if we are unable to resolve a title issue it will be discussed with you and if you wish to proceed there will be an exception in the title policy as to that specific matter.
What Are The Premiums?
Unlike other forms of insurance the original premium is the only cost. There are no annual payments to keep the policy in force. If and when you refinance you will be required to obtain a new lender policy insuring that mortgage. With your owner’s policy in place there will be a substantial discount on the premium associated with the new policy. Title insurance rates are filed by in each state by all title insurance companies and rates vary little from company to company. When you use our cost calculator the rate for your policy will be calculated based on the loan amount and purchase price. It is customary in our area that the buyer pays for the premiums.
What are the types of policies to choose from?
The Lender policy is issued for the amount of the mortgage and only insures the lender, despite the fact that the borrower pays for it. The owner has a choice of two policies. They go by various marketing names depending on the insurance company (not title company) that backs them but we like referring to them as “basic” and “extended” as it seems to easily describe what you are getting. With a “basic” policy, also called an ALTA Owner’s Policy Adopted 6-17-06 (PDF) (which is standard across the country) the policy gives you coverage against matters that pre-date your ownership; or historical coverage. The “extended” policy, also called the “Homeowners Policy” (PDF) may also be marketed under other names. In addition to “historic” coverage prior to your ownership the policy also covers some matters, subject to limits, that may impact your title in the future. See the comparison chart (PDF) comparing coverage between the two policy types. While you are not required to obtain an owners policy, Settlement Ink reserves the right to refuse handling your escrow/settlement process in the event you do not wish coverage. The reason is two fold. First, in the event you have a future claim and you do not have a insurance coverage you will be in pursuit of anyone involved in the process to correct your uninsured title issue and we prefer not to be put in that position. Despite the fact that we would have you sign a waiver the risks are too great and we would prefer to withdraw from offering our services. Secondly, our fee structure is based on our receipt of the commission we earn on the issuance of the policies. Our flat fee is nominal and much of it goes to third parties for various pieces of the process such as the title abstractor, recording service, notary, etc. As such, we would be working for very little fee while assuming the responsibilities and risks involved in your transaction. It is very, very rare that an owner does not obtain coverage but we prefer to be upfront about our position.
Common hidden risks that can lead to a title insurance claim:
- False impersonation of the true owner
- Forged deed
- Legal documents (such as a will or power of attorney) executed improperly or forged
- Misinterpretations of wills or claims by heirs not given proper notice
- Liens for unpaid estate, inheritance, income or gift taxes
- Improperly recorded or improperly indexed documents