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Real Estate Directory

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Title Insurance: Protecting Homebuyer and Lender Interests 

The purchase of a home is one of the most expensive and important purchases you will ever make. You and your mortgage lender will want to make sure the property is indeed yours and that no one else has any lien, claim or encumbrance on your property. Title insurance protects your interests and the interests of the lender, should a claim be made against your property.

Escrow Basics: Securing the Real Estate Transaction

Buying or selling a home (or other piece of real property) usually involves the transfer of large sums of money. It is imperative the transfer of these funds and related documents from one party to another be handled in a neutral, secure and knowledgeable manner. Thus, the escrow process was developed for the protection of the buyer, seller and lender.

  • What is title insurance?
    Title insurance offers protection against claims resulting from various defects (as set out in the policy) that may exist in the title to a specific parcel of real property, effective on the issue date of the policy.
  • What is a “defect?”
    A defect can include a prior claim of ownership from someone other than the person selling you the property, for instance an ex-wife, a former partner or a co-inheritor. It could also include a claim for an easement, giving someone a right of access across your land. For instance, in a lakeside community, an easement along your lakefront property could provide walkway access to the lake for other residents in the area. Another claim could result from a court judgment against the former owner that resulted in a lien placed on the property. Normally, property and casualty insurance insure against possible losses in the future, such as automobile insurance that protects you against future accidents. Title insurance protects against things that happened in the past, and insurers seek to minimize that risk prior to your purchase of the home. In fact, according to the American Land Title Association, more than 1/3 of all title searches reveal a title problem that title professionals fix before buyers go to closing.
  • How can title insurers protect against the risk of a claim prior to my purchase?
    Before the lender finalizes a mortgage on your property, a search of all public records is conducted by a title agent or abstractor. County clerks or recorders maintain records on each property within the nearly 3,600 counties in the United States. These records include legal descriptions of the property; a list of all past owners; current mortgages held by lenders, including home equity lines of credit; liens or judgments placed against the property; and tax records associated with the property. After gathering all of the data on the property, a title agent or attorney prepares a report for the lender. Prior to lending against the property, the lender must be assured all claims of mortgages, taxes and liens against the former owner are cleared up so the lender has first claim against the property, should you default.
  • How can the lender assure all existing claims are paid and the property is free and clear?
    At the time of your closing, the lender provides the closing or escrow agent with a detailed list of instructions, authorizing the agent to pay off all claims at the time the property changes hands.
  • Who pays for the title search, title report and title insurance?"
    A homebuyer purchasing a home with cash would pay for the title search, title report and title insurance. If the homebuyer is taking out a mortgage on the property, the lender requires the title search, report and insurance as a condition of making a mortgage on the property. However, the fees are still paid by the homebuyer as part of the settlement costs associated with the purchase of the property. Alternatively, in some states, the seller is required to pay for the title insurance. The homebuyer is also encouraged to purchase an owner’s policy in addition to the lender’s policy.
  • What is the difference between the Owner's Title Policy and the Lender's Title Policy?
    Title companies routinely issue two types of policies: An “owner’s” policy that insures you, the homebuyer for as long as you and your heirs own the home; and a “lender’s” policy that insure the priority of the lender’s security interest over the claims that others may have in the property.
  • How long is my title policy in effect?
    The title insurance policy is in effect as long as you hold title to the property. If at any time the property changes hands from one owner to another, a new Owner's Title Insurance Policy must be purchased to continue protection.
  • How often will I have to pay a title premium?
    ONCE! The fee is due when you purchase the home, and you never pay it again.
  • What is Escrow?
    You will hear the word “escrow” used often throughout your homebuying process. The basic meaning of escrow is that it is money held by an independent third party during the course of a transaction.
  • Who is the independent third party who holds the money?
    In many states, the escrow agent is a licensed agent within a title insurance company. Some states require an attorney to be the escrow holder for a real estate deal, while other states such as California have separate escrow companies that handle the real estate closing and the disbursement of the funds.
  • Where is the money held?
    In the case of a real estate transaction, the escrow agent or escrow holder has a depository account to deposit the monies for the deal, including your down payment on the property, the funds you provide to cover the closing costs and your lender’s disbursement of the mortgage monies. These monies are held in the account while the transaction is being finalized. From that account, the escrow agent eventually disburses the money to all parties to the deal.
  • What kind of payments are made out of the escrow funds?
    The escrow agent receives detailed instructions from the lender, concerning what must be paid at the time of closing. These payments could include: Payoff of all existing mortgages Payoff of all existing judgments or liens Payment of the balance of the sales price, after mortgages are paid, to the former owner Real estate broker fees and commissions Mortgage fees and commissions Closing costs Title, homeowners and mortgage insurance Taxes Recording fees
  • What are the other duties of an escrow or closing agent?
    In addition to handling the money for the transaction, an escrow or closing agent is often in charge of working with you and your real estate agent, the seller and his or her real estate agent, and your lender to assure all of the documentation needed for the closing package has been submitted and is complete. The agent often oversees the closing process, explaining each of the documents to you and presenting them to you for your signature. After all documents have been signed and the transaction is complete, the closing agent provides you with copies of those documents, and returns a completed mortgage package containing them to the lender. In addition, the agent records all pertinent documents with the county recorder’s office, prepares a statement for all parties detailing the disbursement of funds, and requests the issuance of the title policy.
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