This section gives you answers to the questions we hear most often from home buyers.
Q. What is title insurance?
Title insurance protects the buyer’s title to (i.e., your ownership of) a property from legal challenges that might arise from an illegal or erroneous transfer of title before you bought the property. Title insurance covers the buyer’s legal fees and, up to the limit of coverage, the cost of any related judgments against the buyer.
Q. What types of legal challenges does title insurance protect against?
Here are just a few of the most common hidden risks that can cause a loss of title or create an encumbrance on title:
False impersonation of the true owner of the property
Forged deed, releases or wills
Instruments executed under invalid or expired power of attorney
Undisclosed or missing heirs
Mistakes in recording legal documents
Misinterpretations of wills
Deeds by persons of unsound mind, by minors or by persons supposedly single, but in fact married
Liens for unpaid estate, inheritance, income or gift taxes
Q. Is a buyer legally required to have title insurance?
A buyer is not legally required to have title insurance. If a buyer pays cash for a property and does not take out a mortgage, title insurance would not be required. However, this would leave the buyer open to a potentially devastating loss. If there is a mortgage on the property, the lender almost always requires the buyer to purchase a lender’s policy to protect its interests.
Q. How much title coverage is needed?
Generally, the owner’s policy should provide coverage in an amount equal to the purchase price of the property. The lender’s policy covers the amount of the mortgage.
Q. What are the steps in issuing a title insurance policy?
Here’s how the title insurance policy process works:
Initial Request for Title Insurance / Records Search
A client (usually the buyer's attorney or the buyer or, in the case of a refinance, the lender) places an order for title insurance with the title agency. The agency initiates several searches that are necessary to tell the full story of the current state of the title. These searches include county searches against the property, judgment searches against the individual parties involved in the transaction or in the chain of title, tax searches, tideland and patriot searches. These searches are usually done with the help of independent search companies or through accessing online records. Full title abstracts will be returned to the title agent with copies of all pertinent documents.
The skill and expertise of the title officer is the key to providing the client with an accurate title report. A title insurance agency will begin the review by analyzing the documents of record. The title insurance agency then makes an interpretive analysis of all recorded matters to evaluate their impact on the title to the property.
Binder / Commitment (or, in NY, a Title Report)
The title officer at the title agency issues a title commitment, indicating their intention to insure the title on a given property and specifying the amount of insurance, covered parties, , exceptions and requirements to be met in order to issue its final policy.
Clearing the Clouds
The title insurance company then works to clear any clouds to the title. For example, if there is an open judgment on the property, the title officer contacts the parties involved in an effort to get the judgment paid and clear the title. The title officer will work with buyers, sellers, lenders and their attorney’s to work through the often complex title issues that can arise during the search and examination process.
Closing / Premium Payment
Unlike other insurance policies, there is a one-time only premium payment for title insurance. The premium is paid by the buyer / borrower at the closing table. Closing can occur at the attorney offices or title company or any place elsewhere depending on the circumstances involved.
Policy Issued & Delivered
After the closing the title agency issues the actual title policy. The buyer's policy is generally sent to the buyer’s attorney for delivery. The lender's policy is typically sent directly to the lender.
Q. If the title company does a thorough records search, why is title insurance still needed?
There’s always the possibility that the title searcher missed something. But there’s also the possibility that there were defects or discrepancies the title searcher could not have found—such as forged signatures or misfiled liens or judgments.
Q. Does the amount of coverage increase as the value of my property increases?
There may be a cost of living adjustment in your basic policy, but that does not typically keep pace with increases in the market value of your property. An owner may want to purchase an inflation rider that will increase the coverage amount as the value of the property increases.
Q. What other options are available on title insurance policies?
The most commonly requested option in a homeowner’s title policy is a survey endorsement. Essentially, this endorsement states that the policy covers the property as described in the survey and excludes only those exceptions noted in the survey, e.g., a fence that extends beyond the property line, a garage that was built too close to the property line, etc.
Q. Who pays for title insurance?
Most often the buyer pays for both the owner’s policy and the lender’s policy. The premium is included as part of the closing costs. In many states, the cost for a lender’s policy is a nominal fee added to the owner’s policy premium.
Q. Does it pay to shop around for title coverage?
In many states, the premium rates are set by the state. That means the premium, or cost of coverage, is the same regardless of which insurance company you choose. Depending on the age of the current policy and other factors, a client may be eligible for significant rate reductions. Ask a title officer about this.
Q. What is Co-insurance?
Co-insurance occurs when two or more insurance companies each insure a portion of the total insurance amount. When there is co-insurance, the client pays based upon each company’s premium rates for its portion of the total liability. The client may choose the co-insurance company(ies).