What is Title Insurance?
Title insurance is just what its name implies. It insures that the title on your home is clear of any liens, easements or claims. Title to a house is much like a car title. It proves ownership. But, unlike a car title, there can be hidden claims or easements on the property that can come back to haunt the homeowner.
Here’s what we found: there are basically two types of title insurance. The method of passing title from one owner to another can be different in different counties in a state.
For example, Brevard County, Florida uses a “title guarantee” system and Broward County, Florida uses an “abstract” system. The abstract system means that a history of each piece or property in Broward County is documented. These abstracts can weigh up to several pounds each, but computer storage makes the work somewhat less cumbersome today.
If you were to read one of these abstracts, you would probably read about the Spanish land grants that were given to the original owners of land in Florida. Native Americans were not considered to “have title” to property in the 1700's when the land grants were popular favors to Spanish explorers.
The abstract would detail each transaction changing ownership of the property and any easements that may have been installed along the way. When reviewing an abstract, the title company looks for any unsatisfied claims of lien or ownership.
Title insurance means that clear title is guaranteed by insurance. In both cases the insurance company warrants that no claims will arise that will “cloud” your title and that no liens have been placed on the property prior to your taking ownership.
Who pays for title insurance?
Who pays for title insurance? Believe it or not, it is usually determined by local custom. Title insurance is usually indicated in the purchase contract as the seller’s expense. Logically, the seller ensures that the buyer is getting clear title. Title insurance in the amount of the mortgage is required by almost all lenders.
Also, the buyer may want to acquire insurance for protection of the total cost of the house. Remember, the lender’s title insurance only covers the principal amount of the mortgage which is always less than the purchase price. Title companies will issue owners’ policies at a reduced rate if they have written the lender’s title policy.
But as we found, there is a difference between the lender’s title policy and the owner’s title policy. Each title policy has a list of exceptions that are not covered. Lenders require that most of these exceptions be eliminated from there policies. However, these exceptions are typically left in the homeowner’s policy and can cause problems later.
For example, some title policies state that the policy does not cover liens that may be recorded after the policy has been placed. It sounds logical, but liens may be placed up to 90 days after work is done on a house. This is what happened in my case. Thus, the work might have been finished before you bought the house, but a lien was not placed on the property until after the purchase.
This can include work that the owner didn’t pay for before he closed on the house. That lien will cloud your title for years, but the lender is covered because lenders do not allow that exception in their title policies. It is however an exception that is traditionally included in the owner’s policy.
How about rates? How much does title insurance cost? Here it gets a little confusing. Title companies have what they call card rates and promulgated rates. The card rate is like the window sticker on a car. It can usually be negotiated down to what is called the promulgated rate.
If you go back to the title agent that wrote the policy for you when you bought the house, you may be able to get a better price. Shop around. Title insurance rates vary like anything else.
Buyers can get title insurance from authorized attorneys or title agencies that act as agents of large insurance companies such as Chicago Title, Attorneys Title and others. These agents usually handle the closing for the lenders and many times the closing will take place at their office. When using an attorney for title insurance of real estate closings, it’s best to use one that is experienced in real estate.
Along with the title, the lender will also review a survey of the property which shows if there are any easements that could create problems. An easement is the right of a third party to use some of your property for reasons to get to another piece of property. Or it could mean that there are rights of utility companies to lay cable, pipe or telephone lines along your property’s boundary.
Utility easements are almost universal for all property. Structures can’t be built on these easements so a lender will look carefully at the survey to assure there are no easements running through the center of the house or swimming pool.
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