Frequent Asked Questions
What is a title?
Title is a legal term that refers to one’s right to own, possess, use, control and transfer an interest in real estate. Title may also refer to the way a person holds the ownership (i.e. as a sole owner or jointly with another person). Title may be vested in a person or entity.
What is title insurance?
Title insurance protects the homeowner from unforeseen claims against the property. The insurance will pay for legal defense, court costs and all related fees. It will also reimburse the homeowner for loss up to the face value of the policy.
Why do I need title insurance?
Homeowners often ask the question, “Why do I need title insurance?” Your home is most likely the largest purchase you’ll ever make and title insurance plays a key role in protecting your investment.
A detailed title search is conducted after you sign the sales contract to purchase your home. The title search involves examining the land records pertaining to your property over the last 30+ years. Though this is a detailed and thorough examination, there are many hidden issues that may not be uncovered by this process. For example, forgeries on original documents, missing heirs, improper deeds and ex-spouses are very difficult to detect in the title search. Title insurance protects you against these hidden risks.
One of the most common types of title issues is unreleased liens on the property. Even if the lien does not belong to you, since it is filed on the property, it becomes “attached” and must be cleared. Approximately one-third of all properties have some type of title issue or defect. An owner’s title insurance policy offers full protection against title defects as well as peace of mind to the homeowner.
It is important to understand the difference between the two types of title insurance policies, a lender’s policy and an owner’s policy. Your lender will require you to purchase a lender’s policy to protect their investment in your property. The lender’s policy is usually based on the amount of your loan, exists only over the life of the loan and protects the lender if a problem arises with the title.
Since the lender requires you to purchase a lender’s policy, you may be wondering why it’s strongly recommended to also purchase an owner’s policy. While the lender’s policy covers their interest in your property, it does not protect the homeowner at all. Consequently, if a title issue arises and you do not have an owner’s title insurance policy, you could be faced with large legal expenses to defend yourself against claims made on your property. With an owner’s policy, you can rest assured that the title company will pay valid claims and cover your legal expenses should a title issue arise against your property.
The owner’s policy is purchased for a one-time fee at closing and is based on the sales price. Unlike the lender’s policy which is effective only for the life of the loan, an owner’s policy covers the homeowner for as long as they or their heirs own the property.
If you refinance your home, the lender will require you to purchase a new lender’s policy since you are obtaining a new loan. The lender wants to be protected in case any claims have arisen since you originally purchased the property. You do not have to purchase a new owner’s policy since the original policy is in effect as long as you still own the property. You also may be entitled to a reissue rate, or discount, on the new lender’s policy if you have a prior owner’s policy Vanguard Title & Escrow always applies the reissue rate discount to both refinances and purchases when available.
What does a title company do?
It is our job to coordinate the interests of all parties to a real estate transaction, including the buyers, sellers, mortgage lender and real estate agents. We make sure that all requirements for settlement are fully satisfied. After the Sales Contract is ratified, it is sent to us to review for accuracy and completeness and to begin the title process, which involves the following steps:
1) Title search: We research the title to the property through a title search, which provides a history of the property and its ownership. We examine the title and clear any liens or claims on the property so that the new buyer receives clear and marketable title to their new property.
2) Survey: Most lenders require a survey, or house location drawing of the property. We will order a survey, with the buyer’s authorization, and review for any potential problems. Should any issues arise on the survey, we will notify the real estate agent, lender and the new buyer immediately. The survey will be given to the buyer at settlement.
3) Property taxes: We verify with the local or state taxing authority that the property taxes have been paid. Similarly, we check with the local utility companies and Homeowners/Condo Owners Association to confirm that all payments are current. On the HUD-1 Settlement statement or Closing Disclosure, we will prorate the amounts based on the billing period and the settlement date.
4) Title insurance policy: We issue both the owner’s title insurance policy and lender’s coverage. There are two types of Title Insurance: Lender’s, which is required by the mortgage company, and protects the lender’s investment in the property; and Owner’s, which may be purchased at settlement for the benefit of the new owner. It is strongly recommended that all buyers receive an owner’s title insurance policy which protects them against any unforeseen claims, hidden risks, or fraud against the property. The insurance policy provides protection from financial loss as well as payment of legal costs necessary to clear such claims.
5) Loan documents for closing: We also coordinate with the mortgage lender to receive the loan documents for closing. Once received in our office, we review all forms and comply with the lender requirements for closing. With these documents, we are then able to complete the HUD-1 Settlement Statement or Closing Disclosure. This settlement statement/CD is one of the most important documents to sign because it details all of the costs associated with the purchase and sale of the property. We also prepare the deed and other documents necessary to comply with state and federal laws.
6) Closing: At closing, all documents are explained to all parties prior to signing. Settlement lasts approximately one hour. After closing, we disburse all the monies collected at settlement and pay vendors such as the surveyor and tax collector. We also pay off and release the existing mortgages on the property and prepare the loan documents to be returned to the lender.
7) Documents recorded in courthouse: It is our responsibility to make sure all documents are properly recorded in the courthouse, such as the new deed and mortgage. We also ascertain the release of any existing liens on the property. To insure fast recordings, all documents are electronically recorded with the counties that allow electronic recording.
What is a title search?
A title search is a detailed examination of the land records concerning a property. A typical search for a purchase transaction goes back 30+ years. The types of documents contained in a search include deeds, mortgages, court records, property and name indexes and taxes, as well as many other documents. An experienced attorney or title officer will examine these records to determine if the title to the property is insurable for the new owner. We look to determine the owner’s right to transfer and ascertain any liens or defects on title.
What kind of problems can a title search reveal?
A title search can reveal problems such as defects and liens, as well as unpaid taxes, unsatisfied mortgages, judgments against the seller and restrictions limiting the use of the land. Approximately one-third of all title searches reveal some title defect that must be cleared. The most common type is an unreleased lien. The most problematic title issues are outstanding interests of a person on title or forgery.
What type of payment is required for closing?
All money needed for a real estate transaction must be brought either to settlement or sent to the title company before closing. The money must be “good funds” which means it has to be either in the form of a Cashier’s check or wire transfer. We will accept a personal check if the amount is less than $500.00. Ask us for our escrow account prior to settlement. If you plan to move money from investment accounts to bring to settlement, check with your investment company at least a week prior to the close date since it may take several days for the funds to be available.
How does title insurance protect my investment if a claim should arise?
According to the terms of your policy, title insurance will pay your legal fees to defend yourself against a fraudulent claim and also pay any valid claims, up to the face value of your policy.
Isn’t purchasing both the owner’s and lender’s policies duplicate coverage?
No, it is not duplicate coverage. Your lender will require you to purchase a lender’s policy to protect their investment in your property. The lender’s policy is usually based on the amount of your loan, exists only over the life of the loan and protects only the lender if a problem arises with the title. A lender’s policy does not protect the owner, which is why the owner should purchase an owner’s policy.
DISCLAIMER: This information is intended for educational purposes only and does not constitute legal advice. You should not rely or act upon any information contained in the “Frequently Asked Questions” without seeking the advice of qualified legal counsel.