Title insurance protects against losses from various matters affecting title to Real Estate. It provides coverage for future claims or future losses due to title defects created by a past event (an event prior to the acquisition of the property).
What kinds of Title Insurance are there?
a. LENDERS TITLE POLICY – this protects the lender for the FULL LOAN AMOUNT. Lender’s policies are almost always required by the lender.
b. OWNERS TITLE POLICY – This protects the Purchaser for the FULL PURCHASE PRICE. An owner’s policy is always optional to the buyer.
Why get an Owner's Policy if the buyer is already purchasing a Lender's Policy?
Simply put, a Lender’s Policy does not protect the buyer, it is a policy that protects the lender for the full amount. If the buyer wants to be protected by title insurance, they will need to get an Owner’s Policy, which would protect them for the full purchase price (and possibly more if they get a premier policy).
Why get Title Insurance if buyer has paid for a Title Search?
First, Title Insurance pays for attorney’s fees and costs associated with defending title to Real Estate – if there is a mistake made in the title exam (or other steps in the closing by the title company) the cost of the Title Insurance is usually less than the fees associated with hiring an attorney to represent you in a suit against the title company’s insurance carrier. Furthermore, there are title defects that cannot be ascertained by even the most precise title exam (these defects to be covered later). A title exam does not guarantee that there are no title defects.
What is covered in a Title Insurance Policy?
Policies afford coverage for a variety of issues that are considered defects in title, but not limited to, the following:
a. Mistakes in recording of legal documents
b. Mistakes in the indexing of legal documents
c. Mistakes in the legal descriptions of the property
d. Undisclosed or missing heirs
e. Unpaid taxes and assessments
f. Unpaid judgments and liens
g. Incorrect interpretations of wills
h. Incorrect interpretations of trust agreements
i. Mental incompetence of grantors of property
j. Fraud in securing essential signatures on documents
k. Improper execution of documents
l. Title defects that were created outside the term of title search (title search generally only go back 60 years)
What is an Enhanced or Premier Policy?
As the name implies, this type of policy provides extra protections for the policy holder. The extra protections provided range from Restrictive Covenant Violations, Mineral Extraction Coverage, Building Permit Violations – as well as other items that are normally excluded from a standard policy. The greatest benefit of an enhanced or premier policy is for the automatic inflation protection, which allows the policy protection to increase up to 50% above the purchase price if the value of the property has increased after purchase but before the title defect was discovered. Of course, the premium for a Premier Policy is higher than that of a standard policy.
What is a Re-issue Rate on a Policy?
This is a discount given on the title insurance if a prior owner’s policy has been issued on the property. It is approximately a 40% discount on the policy up to the amount of the prior policy (if the new policy to be issued is more than the prior owner’s policy, the non-discounted rate would be used to calculate the amount above the prior policy). This makes it so that the Seller can help out the Buyer by providing a copy of the owner’s policy they got when they purchased the property. It is also acceptable to get a copy of the HUD from when they bought the property showing that they paid a premium to purchase an owner’s policy at closing.
How do I calculate the premiums for Title Insurance Policies?
The premiums vary depending on whether it's an Owner’s or a Lender’s Policy, including whether they are issued simultaneously, whether it’s a Standard or Premier Policy, whether it’s a reissue, and the premiums change as the policy protections get higher (the rate per thousand of coverage decreases as you cross certain thresholds). Just give us a call, we will be glad to give you a title insurance quote for your client’s circumstances.