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House with Pool

Title Insurance

Introduction To Title Insurance

If you own a house ─ probably your biggest lifetime investment ─ you no doubt have homeowner’s insurance which protects you against fire, flood, theft, etc. What then is title insurance and how does it differ from the former? The answer is that it protects you and the lender (i.e. your mortgage bank or broker) against loss of your home’s value because of liens or encumbrances or defects in the title. As such it is different than other types of insurance. Most insurance protects you against future risks (such as a car accident), while title insurance protects you against past and existing liability that was not caught at the time your house closed.

For example, let’s say the previous owner had $50,000.00 of renovation done on the house, but only paid the contractor $10,000.00. If the contractor filed a $40,000.00 lien on the home and it was not caught at the time of closing, the new owner could be liable for that amount if the contractor took steps to enforce his lien. Title Insurance transfers the liability to the insurer who would pay the $40,000.00 or defend against the action. Since the insurance covers liability that occurred prior to your home purchase, you only pay the premium once at the time of closing, as opposed to home insurance, in which you pay the premium yearly. The coverage protects you for as long as you own the property. (If you refinance your home however, your lender will want a new title insurance policy, since it needs to be protected from the date you originally bought your home through the refinance date.)

 

Title Search

Prior to your closing, a title search is performed by your title agent. It involves researching the public records of the specific property for any variances or irregularities associated with it—to insure the property is owned free and clear and that any existing liens or mortgages are being paid off at the time of closing.

In short, the title search determines the answer to these questions:

• Does the seller have a saleable interest in the property?
• Are there restrictions or allowances pertaining to land use? (i.e. real covenantseasements, or other servitudes)?
• Do any liens exist on the property which need to be paid off at closing? (mortgages, back taxes, mechanic's liens, or other assessments)
• Does the purchaser have access to the land? For example, there may be back taxes due on the property that need to be resolved before the transfer of title is completed. Or easements might restrict your usage of part or the whole of the property. Perhaps a previous owner may have legally given a neighbor the right to share the driveway, or the city may have a right to strips of the property for putting up power lines, communication lines, water pipes, or sewer pipes.

A title search will disclose all variances that could affect your investment. If defects are discovered, the title insurance company has to decide whether to attempt to cure the problem, insure over the problem or exclude those defects from coverage. If defects are not discovered but arise later, then the title insurance coverage protects you. Examples of such defects might be improperly executed documents from a previous sale or a lien against a previous owner.

The resulting report is called an Abstract or an Abstract of Title. The bank or mortgage company requires it before any loan can be approved.

The underwriter is the entity that authorizes and issues authority for its agents to write title insurance policies. The underwriter assumes financial risk and actually insures the property against insurance defects. Title insurance underwriters agree to defend the owner of the title policy in court should ever any undiscovered legal issues arise with the title. The underwriter may also issue the policy itself. 

Florida Re-Issue Credit:

Re-issue credit is a discount offered to parties that can prove a prior title insurance policy. This could save you up to 40% in savings. In order to get a re-issue credit, a copy of the prior title policy issued in the name of the seller, or of the borrower who is refinancing. One of the following conditions must apply:

1) Policies on real property which is unimproved except roads, bridges, drainage facilities and utilities; or

2) Prior policy was issued with an effective date of less than three years; or

3) Prior loan policy was issued for a refinance, and it was insured by an original owner's policy which insured the title of the current borrower. 

Who pays for Title Insurance:

All transactions are subject the individual Agreement of Sale and negotiations.

However, customarily, in Broward and Miami-Dade counties, it is the seller's responsibility to pay for the Title Search only and the buyer is responsible for the owner's policy.

In Palm Beach county, it is usually the seller's responsibility to pay for both the title search and the owner's policy.

Lenders & Owner's Title Insurance:

Owner's title insurance protects the owner from claims against the title that predate the purchase of the property, and lender's title insurance protects the lender. An owner's policy is not required in the state of Florida. As long as the lender is protected with a loan policy, you are free to go ahead with the closing. However, keep in mind that without owner's title insurance, the buyer is unprotected should any questions arise concerning ownership of title at a later date, and the buyer is at risk of losing the property along with any money put into it. A one-time-payment for an owner's policy will protect you for the entire time you own the property.

Caveats

The proliferation of affiliated business arrangements can sometimes be problematic. The realtor pushes his or her lender, and title insurance company. The builder might offer to pay $2000.00 in closing costs if you use their lender and their attorney. Some of these practices (depending on whether kickbacks are involved) may even be a violation of RESPA. By choosing your own title company, you are choosing an independent third party that is not owned or operated by your real estate agent’s firm or your bank. There is a much smaller likelihood of any conflicts of interest and an independent agent holds no loyalties to the other parties in the transaction. Please visit our Fee and Rate page for full disclosure of fees and charges. And do reach out to me by either sending an email to Shevy@Bayittitle.com or filling in our automatic form for a free quote request.

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