Title insurance is a frequent topic of conversation that comes up during real estate transactions. Insurance can always be a touchy subject because as we all know, everything we do, whether it be drive a car, break a leg, or even sit on our living room sofa, has some type of insurance attached to it. As necessary as insurance is, it can become costly. In this blog, I’d like to share with you why I highly recommend purchasing title insurance when you buy a new home or property. I think you will be pleased to learn how well you’ll be protected, at a minimal one-time fee. It will be well worth the investment.
Wikipedia gives the following definition for title insurance: Title insurance is a form of indemnity insurance predominately found in the United States, which insures against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage loans. Now, here’s my definition: Title insurance protects your investment indefinitely. You need to get it.
How does it work?
The structure of title insurance is set up differently than your ordinary insurance plans. Most every other type of insurance is set up to insure the future, where you make a reoccurring payment to continue your policy in the future. For example, when you buy health insurance, you are insuring yourself forward. Homeowners insurance insures everything that has to do with your home except for the title to it. Homeowners insurance will cover any unfortunate situations from the moment you purchase your home, and going forward while you own it. Title insurance will cover every kind of title issue with a property that has happened in the past, and it will cover you for the entire time that you own the property. Whether you own the property for six months or 50 years, there will never be a difference in your coverage.
How much does it cost?
There is a one-time fee for title insurance. Unlike other insurance where you pay a reoccurring monthly or annual fee, you only pay once for title insurance. This fee is collected at closing along with all of your other closing costs when you purchase your property. The fee varies based on purchase price and length of the title search. The title insurance fee goes directly to the title insurance company. This one-time fee for title insurance is relatively nominal compared to the amount of your investment. The fee tends to be less than $1000. On a $300,000 home, your title fee would be around $700. Title insurance must be purchased when you close on the property. There is not a meaningful option to purchase it later because when you are closing, you have an attorney who has already completed a full title search. An attorney is the only person who can actually perform a title search that a title insurance company will base their policies from. Title searches are only valid for 30 days, and after that they must be updated.
What is a title search?
Your attorney and staff perform the title search by looking at everything that is in public record and in the court system about the property. We also research and review all of the tax records on the property. All of these searches are performed to establish a clear chain of title to prove who the previous owners were. Once we have discovered all of the previous owners, we review what happened to the property while they owned it. The ultimate goal of the title search is to ensure that they buyer is getting what they think they are getting. There are two ways that title searches can happen:
- Full search: A full search that looks back a minimum of 30 years. This includes researching property history by looking up old title records through the courthouse and other methods of research. The more years the title search is, the more your title insurance will cost.
- Tacking: Tacking shortens the title search time period to only research back to the previous title insurance policy as opposed to the full minimum 30 years. If there is a prior title insurance policy, your attorney can search from the date of that policy forward. This method is significantly cheaper because the title insurance company is reviewing and researching a shortened timeframe. Your real estate attorney asks the top title insurance companies in the area if there is a prior policy to determine whether a full search is required or if the tacking method can be performed. Title insurers are internal and are provided by your real estate attorney. This is why consumers will not see commercials on television or be able to browse through the World Wide Web to find the best one of your choosing. Real estate attorneys are the only authorized individuals who can perform the required searches and order title insurance for consumers. North Carolina differs from other states where the real estate attorneys are also the title insurance company.
What does title insurance cover?
There are two different types of policies you can have under title insurance:
- Lenders Title Insurance: This type of insurance protects the bank you are working with. If you’re working with a bank, lender’s title insurance is mandatory. There is no way around it. All banks require this in order to receive your loan.
- Owners Title Insurance: This type of insurance protects the owner.
If you get the policies together, both lenders and owners, the owner’s policy will be heavily discounted. If you do not put a down payment towards your purchase, the owner’s policy is typically $25 because you are already paying the lenders policy. If you buy a house in cash, there is no law that forces you to purchase title insurance, but I would still highly recommend that you do so. If you still choose not to, I usually ask my clients to sign an affidavit that explains the importance of title insurance and that you have opted out of purchasing it.
Why do I highly recommend purchasing title insurance?
There is a wide range of title problems you could have, and should you have one, the essence of the problem is that you don’t own the property. This low, one-time fee can protect your investment indefinitely.
Most title problems can be fixed. Purchasing title insurance can make you aware of the problems and take steps to fix it. In my opinion, it would be unwise to buy a property and not perform a title search on it and get the title insurance.
Many of the properties I’ve noticed with title issues have been ones that have been passed down from family member to family member, without a bank ever touching it. Then, 50 years later, another family member tries to sell the property or get it refinanced, which causes a real estate attorney to look over the paperwork, which reveals the problems. How soon after closing on your property will you get your title insurance policy? Many people have the expectation that they will have their title insurance policy on the day of closing. However, the reality is that there are a series of steps that the attorney has to take after closing to get title insurance issued. The general goal is for the title insurance company to have issued the policy within 30 days of closing.
Should you get a survey performed on the property?
There is a relationship between title insurance and surveys. The only way to know where the boundary lines of your property are, is to have a survey. You can never assume that your property line is drawn where a fence has been put up or where shrubbery has been planted. Survey information can be conveyed to title insurance such that title insurance will insure any sort of boundary dispute or any other dispute that would be solved by having the property surveyed. Getting a survey before title insurance has been issued will obligate the title insurance company to defend you with any questions that may come up in the future about your property’s boundary lines. Title insurance protects the exact amount of your investment. For example, if you bought your house for $200,000 you will have a $200,000 policy.
Clement Law Firm - Asheville, NC - 828-281-8160 -www.eclementlaw.com