Whose Title Is It Anyway?
August 28th, 2008 categories: Market Trends, Relocating
One of the costs, or settlement costs, borne by the buyer when purchasing real estate is title insurance. It is one of the many “Title Charges” on the HUD-1, or Settlement Statement the buyer and seller reviews at the closing table during the real estate settlement. Title insurance is further broken down into lender’s coverage and owner’s coverage. Each of these serve an important purpose, as indicated, the former for the lender, the latter, the purchaser. And, as mentioned earlier, since this cost is normally the purchaser’s, it is an expense that needs to be understood clearly.
Title insurance is protection, plain and simple. Protection against what? Simply put, it protects those covered against claims against the property, or, more accurately, against the title to the property. These claims can range from unpaid real estate taxes, liens due to unpaid work done to the property, to a forged signature during the tranferrence of title. So, as you can see, the coverage can be characterized as an ”umbrella of sorts” insuring against many title problems. If there are any claims against the title, the insurance insures against the claims and any legal fees that arise.
Is title insurance required? Well, unless you’re paying cash, lenders want protection too. In this case, they want to protect the amount of the loan. So, yes, you’ll be required by your lender to get title insurance coverage. As a purchaser, it’s important to remember that this protection covers the lender but doesn’t protect your equity in the property. That’s where the owner’s coverage comes in.
Remember, the insurer has searched the title. But, nothing is 100% fool proof. That’s why insurance is needed.
Lastly, title insurance exists for both the property owner and the lender. The owner’s policy lasts as long as the insured owns the property, and is typically the purchase price paid. On the other hand, the lender’s policy is issued to lenders, and follows the assignment of the mortgage loan, thus facilitating the sale of mortgages in the secondary market to high volume purachers like Fannie Mae and Federal Home Loan Mortgage Corporation(Freddie Mac).
The “closing table” is a welcome sight for all involved in the sale of a home transaction. After weeks or months of hard work, it is a “finish line” of sorts. For many, it represents a destination finally arrived at. The Settlement Statement or HUD-1 is used to explain who pays what, and is used by the Settlement Agent to itemize all charges to buyer and seller. Additionally, the agent is charged with clearly explaining to all parties involved who pays what, and why. One of those expenses paid by the purchaser is title insurance. Hopefully, the next time you’re sitting on the buyer’s side of the settlement table, you’ll know exactly what your title insurance is paying for. If not, please ask!
Very clear explanation and a good read for all potential home buyers.
Appreciate the comments Kevin. The settlement process, and the closing documents involved can, at times, be a bit overwhelming for the home buyer.
“Read ahead” clarification from lender and real estate agent assists in providing the client with answers before they sit down at the closing table, and hopefully makes the settlement smoother for all involved, including the settlement agent.