Context – what do you know about title insurance?
If you have ever purchased a home, chances are you are somewhat familiar with title insurance – even if you don’t know all its ins and outs, you’re likely to have at least heard the term during the buying process. It may seem frivolous, some even claim unnecessary – but that sentiment is usually the result of not understanding what title insurance does, or how important it can be. Here’s the full scoop on title insurance and why it is a crucial part of any real estate transaction.
Introduction – what is title insurance?
In the simplest terms, title insurance is a one-time, upfront payment that protects the real estate investment for both the homeowner and the lender. Specifically, it guards against claims on the property or problems that occurred before the property was purchased, whether the issue was known or unknown. Hopefully, you will never have to submit a claim under your title insurance policy. Should the need arise, the policy provides instructions on how to submit a claim under the policy. If you select Timios as your title insurance agency, we would be happy to assist you with filing a claim under your policy.
Lender vs. owner title policy
There are two types of title insurance policies – a lender policy and an owner policy. Virtually every lender will require a lender policy in the real estate transaction – this is paid by the borrower and is part of the closing costs. Homeowner’s title insurance is not usually required, but in the event of an existing lien, judgement, loan, etc. on title, it will substantially increase coverage for the borrower.
What does it protect against?
Title insurance protects against any known or unknown issues that arose before the property was purchased. An issue may be as simple as a clerical error when recording a document, or as complex as a previous claim on the title missed during the purchase process. Examples of title issues may include, but are not limited to:
- Ownership claims by spouses who did not convey their interests as well as ownership claims from undisclosed or missing heirs
- Forgery and fraud that may have occurred in in conveyances
- Capacity issues such as the mental incompetence of a grantor or a transfer of title by a minor
- Wills that were not properly probated and heirs that were born after the execution of a will
- Incorrect legal descriptions in a deed or incorrect indexing of a deed in the public record
- Existing liens or easements on the property that were not discovered in the title search
- Other title defects
What could go wrong w/o TI (example)
At this point, it should be becoming clear what title insurance does, but what would happen if you don’t have title insurance? Let’s take a look at an example:
Mr. and Mrs. Jones buy a home after months of research and shopping the market to settle in and start a family. Like any other transaction, the pay for the lender’s title insurance policy as part of the closing costs. They sign, move in, and love the home – everything is great – until a few months later, when they receive a letter and discover that there is an unpaid lien against the property from a previous owner, in the amount of $90,000. The lender is protected due to their title insurance policy and is protected against the loss. Meanwhile, Mr. and Mrs. Jones didn’t realize that they could buy their own policy when they bought the house and are liable for the lien. Now they will need to pay off the lien, or hire an attorney to fight it – an expensive and stressful scenario either way.
Unfortunately, this is one of the more common issues that arises after a home purchase. If the Joneses bought their own policy, they would have been completely protected. The title insurance company would either utilize their resources to get rid of the claim, or simply pay the lien themselves, at no cost to the owners. In situations like this, it’s easy to see why a homeowner’s title policy is a good idea.
If I ever get into a situation when I need to use my title insurance, how do I file a claim?
Hopefully, you will never have to submit a claim under your title insurance policy. Should the need arise, the policy provides instructions on how to do so. If you select Timios as your title insurance agency, we would be happy to assist you with filing a claim under your policy.
What does title insurance cost?
In most situations, a lender’s policy is cheaper than a homeowner’s policy. The specific amounts vary based on a number of different factors, including home price. For a lender’s policy, the location is usually the biggest one. Each state has different regulations for title insurance companies and have different requirements when examining the title of the property. Typically, the lender’s policy costs between $500 and $1,500. Again, this is part of the closing cost when purchasing a home and is virtually always required by the lender.
The optional homeowner’s policy is also dependent on location, but there are a few other variables when calculating the cost. The down payment amount, loan amount, and borrower’s credit score all affect the price. If you are taking a loan to acquire a property (instead of buying it outright), an owner’s title insurance policy can often be obtained relatively inexpensively through a “simultaneous issue” of both the lender’s and owner’s policies. When there is no loan involved, the buyer will be charged the full premium for the owner’s policy of title insurance.
Another thing to keep in mind – it is customary in certain areas for the seller to cover the cost of a homeowner’s policy for the buyer (this is not always the case). In general, a homeowner’s title insurance policy will cost between $700 and $2,000. That may seem like a lot of money, but considering the potential risk it protects against, it’s usually worthwhile.
Shopping for title insurance?
In most cases, you have the right to select your title insurance agency – especially if you are paying for the title insurance policy. You will want to perform research on the title insurance agency as well as the title insurance underwriters that the agency works with. Timios, Inc. (“Timios”) encourages our clients to compare our fees and research our reviews. After closings, we encourage our clients to rate our service through Testimonial Tree. As of December 2020, Timios has over 9,400 customer reviews with an average 4.7 out of 5-stars. Check out our reviews here.
Regarding title insurance underwriters, you will want to verify the company’s financial stability. Hopefully, you will never need to rely upon your title insurance policy. However, if you do need protection under the policy, it is important that title insurance underwriter be is solvent should the need arise. Timios is an approved agent of both First American Title Insurance Company (“First American”) and Fidelity National Title Insurance Company (“Fidelity”). Companies such as Demotech, Inc., regularly review the financial solvency of title insurance underwriters. You can search Demotech’s website here to determine their ratings for First American, Fidelity and virtually every other reputable title insurance underwriter.