Frequently Asked Questions
What is title insurance?
It’s protection against loss if a defect is found in your title. When you buy a home, you are given a title to the property that generally means you receive FULL LEGAL OWNERSHIP. But sometimes there’s a hidden mistake (not in the public record) in a prior sale, will or mortgage, etc. that may give someone else a valid legal claim against your property!
Who is covered?
The Lender: When you buy property, you are commonly required to buy title insurance. This covers the outstanding balance on the mortgage for the lender, but does not protect you.
The Buyer: When acquiring property, it’s a good idea to get your own title insurance policy. It will give you peace of mind and maximum protection in case there’s a claim against your home.
What is a title search?
The Title Search is the FIRST STEP in obtaining title insurance. It’s a detailed examination of the historical records concerning the property including deeds, civil and probate court records, tax records, etc. The purpose of the title search is:
- TO VERIFY the seller’s right to transfer ownership.
- TO DISCOVER any claims, errors, assessments, debts or other burdens or restrictions on the property.
A title search is carried out by a lawyer, abstractor or a title insurance company. In some cases, the title searcher prepares an Abstract: a condensed legal history of all transactions affecting the property. Based on the result of the title search, the title insurance company usually issues a commitment to inure (also called a “binder”). It Includes:
- A SUMMARY of the condition of the title, including title defects, liens, etc.
- AN AGREEMENT to issue a title insurance policy upon payment of the premium.
- THE LENDER receives a copy of the binder to use until the title insurance policy itself is issued at the closing.
- YOU (THE BUYER) should arrange to get a copy (or have one sent to your lawyer) so that you can meet all the conditions before the closing.
How much does title insurance cost?
You pay a one-time-premium. Costs vary from state to state. Check with your lender, attorney or title company for costs in your area. In some areas, title insurance costs are shared by the buyer and seller. Ask about simultaneous policies issued by the same insurer to the buyer when lender’s policy is issued – it can save money.
It’s ILLEGAL under federal law:
- for sellers and brokers to receive “kickbacks” (commissions) for referring home buyers to title insurance companies.
- for any seller to require you to consult a particular insurance company (unless they’re paying for the policy)
Detailed list of risks covered by our insurance company
A mortgage policy of title insurance insuring the property you are buying or mortgaging is being issued to your mortgage lender, but that policy does not provide title insurance coverage to you. An owner’s policy of title insurance insures you against actual loss you suffer resulting from certain title risks covered by the policy. If those title risks affect your property to the effective date of the policy. The following is a list of the title risks covered by an owner’s policy:
- Someone else owns an interest in your title, and that person’s interest is not listed in the policy.
- A document affecting your title was not properly signed, sealed, acknowledged or delivered.
- Forgery, fraud, duress, incompetency, incapacity or impersonation.
- Defective recording of any document.
- You do not have any legal right of access to and from the land.
- There are restrictive covenants limiting your use of the land, unless we listed those restrictions in your policy.
- There is a lien on your title because of a mortgage, judgment, tax or special assessment, or a charge by a homeowner’s or condominium association, unless we listed those liens in your policy.
- There are liens in your title arising now or later, for labor and/or material furnished before the effective date of the policy, unless you agreed to pay for the labor and/or material.
- Other people have rights arising out of recorded leases, contracts or options, unless we listed those recorded documents in your policy.
- Someone else has a recorded easement or servitude on your land, unless we listed those recorded documents in your policy.
- Your title is unmarketable, which allows another person to refuse to carry out a contract to purchase, to lease or to make a mortgage loan in connection with your property.
- Other defects, liens or encumbrances not listed as exceptions in the policy.
- Additionally, depending on the type of owner’s policy you purchase, you may also be covered against the following risks:
- You are forced to remove your existing structure, other than a boundary wall or fence, because extends onto adjoining land or onto an easement, violates a restriction shown in schedule B of the policy or an existing zoning law.
- You cannot use the land because use of the land as a single-family residence violates a restriction shown in schedule B of the policy or an existing zoning law.
- You also have the right to obtain a survey, at your cost, and if it is satisfactory to Stewart Title, we may include coverage in your owner’s policy to insure you against actual loss you suffer if the matters covered by the survey are incorrect
In addition, the owner’s policy provides that if someone challenges your title and that challenge is based on one of the title risks covered by the policy, Stewart Title Guaranty Company will defend your title, and will pay the costs, attorneys’ fees and expenses that we incur in providing that defense. Stewart Title Guaranty Company has the option not to defend your title, but if we decide not to defend your title, we must do one of the following things:
- Pay the claim against your title;
- Negotiate a settlement;
- Pay you the amount required by your policy;
- Take other action that will protect you; or
- Cancel the policy by paying you the policy amount, which is the amount of insurance coverage in effect on the date we choose to cancel the policy.
Why is title insurance important?
Because it provides a “safety fence” around your property. Having title insurance can save you money, time and trouble – even your home!
What risks are covered?
Coverage typically protects against four “hidden risks” but varies depending on your policy.
- Errors: Incorrect information in deeds, mortgages, public records, etc., such as wrong names.
- Liens: Claims against your property or the seller which become the new owner’s responsibility after the sale. Examples are unpaid mortgages, taxes, sewer and water assessments, bills owed to workers or other creditors, etc.
- Claims to Ownership: For insurance, a claim to “mutual interest” by the spouse of a former owner or by a child of a former owner who was not mentioned in his or her parents’ wills.
- Invalid Deeds: For example, transfer by a previous seller who did not actually own the property, or by a previous owner who was not mentally competent.
Many of these problems might not be discovered in a routine title search.
Standard Exclusions often appear as part of the printed form. For example:
- Errors due to poor surveying, such as faulty border lines
- Limitations on land use, such as laws against farm animals
- Mechanic’s liens, such as unpaid construction repair bills
Exceptions may also be specifically written into your policy. For example:
- Easements, rights of way, and other legal obligations noted in the deed or in the public records
- “Restrictive covenants,” agreements limiting certain types of use of your property
Your insurance company may remove some exceptions if you request it.
What happens at the closing?
Ownership of the property is transferred. Title insurance is issued and coverage begins. CLOSING COSTS usually add up to 6% or more of the purchase price. Depending on the state and local laws, you may have to pay:
- TITLE COSTS: Fees for the title search and he lender’s title insurance. Your own title insurance is an additional fee.
- LOAN CHARGES: Including origination, appraisal and survey fees.
- SETTLEMENT FEES: Fees for the lender’s agent (usually, a lawyer or a title or escrow company representative). You may want your own lawyer in addition.
- TAXES AND GOVERNMENT FEES: Transfer taxes, buyer’s share of yearly property taxes.
BEFORE YOU CLOSE get an ITEMIZED LIST of all closing costs and understand them. Those present at the closing may include you, the seller, the bank’s agent and agents representing you or the seller. CHECK YOUR TITLE INSURANCE POLICY and all other documents before you leave the closing.
- NAMES should be listed, spelled correctly.
- DESCRIPTION OF PROPERTY should be accurate, legally correct, up-to-date.
- FIGURES should be correct, as previously agreed.
THIS IS YOUR CHANCE to verify fees, check procedures and terms and ask any questions.
What happens if a claim is made?
NOTIFY the title insurance company at once, in writing. Include with the letter a copy of all related letters and documents. (Claims are rare, but do occur.)
The company will:
- NEGOTIATE with the other party to settle the claim.
- DEFEND your title in court if necessary.
- SATISFY any covered claim for which it is responsible.
- PAY legal costs incurred in defending title.
So, title insurance protects you against almost any title problem. You get a LOT of security and peace of mind for a SMALL PRICE!