In many instances when a homebuyer comes to the closing table to sign what seems like a mountain of paperwork, legally binding them to a property, they don’t always understand the extra $1000-$5000+ for “Title Insurance.” What many people don’t understand, or sometimes it is not explained that Title Insurance is a 1 time fee that protects homeowners. There are also different levels of Title Insurance coverage. You have the “Standard Owners Title Policy” and the “Enhanced Owners Title Policy.” There are major differences and I will discuss them shortly. When the new TRID/CFPB regulations go into effect (proposed October 3rd) the new forms replacing the HUD-1 paint a different picture on the Owners Title Policy. Here is why it is important to buy an Owners Title Insurance policy and how it can protect you as a homeowner.
Is it Really Optional?
Scheduled to go into effect October 3, 2015, the new Closing Disclosure (which replaces the HUD-1) has the many fees that the borrower pays as separate line items. There is nothing is wrong with that – as a consumer you want to know what you are pay for and why. On Page 2 of the new Closing Disclosure under Other Costs H7, it says “Title-Owner’s Title Policy” (Optional). In many markets, the seller pays for the buyers Owner’s Policy. However, in other markets such as the Washington DC/Northern Virginia region, this is not the case and the buyer pays all of their own costs related to Title Insurance. While an Owner’s Title policy has always been an optional purchase for a buyer, it is highly recommended as it is a one-time fee that protects the homeowner for life, even after they no longer own the property.
Title Insurance protects and/or indemnifies a home/property purchaser against any loss resulting from title defects, whether these defects are known or unknown at the time of the sale or refinance. Here are some of the basic items that protects/covers the homeowner with a Standard Title Policy:
Mechanic’s Lien Coverage
- Defective Recordings
- Third Party Claims (against Title)
- Policy insures anyone who inherits the property from you
- Prior recorded liens not disclosed in the Title Policy
That sounds good right? So why spend more money to buy an Owners Title Insurance Policy? Many reason’s why. First, the coverage is a lot more extensive and covers the homeowner in almost every situation. For many people, the greatest asset they own is their home, so protecting it and yourself should be on your list of importance. Owners Title Insurance is designed to do just that. One of the great things about “enhanced” Owners Title Insurance is that the coverage increases as your home value does. In fact, it goes up to 150% coverage of the value of the home you just purchased or refinanced.
A Few Examples of Why you Should Buy an Owners Title Insurance Policy: (real cases)
- You receive a late notice in the mail for a loan you do not have. This notice says you have an equity line of credit but you don’t. Upon further investigation you realize someone has stolen your identity, taken out a loan in your name. That loan has been recorded against your property and now it is in default. You are about to be foreclosed by the lender. What would you do? Well if you had purchased the Stewart ALTA Homeowner’s Policy of title insurance you would file a title claim, Stewart would undertake to deal with this because of the post policy forgery coverage you have in the policy. If you did not have this type of owner’s title insurance you would have to call your own attorney to deal with this difficult situation.
- You try to refinance or sell your house and find out that your seller’s loan is still recorded against your property. Worse yet, it was a credit line and the lender who was paid at closing did not close the line of credit but, in fact, sent the seller more checks and the seller has run that line of credit up to its maximum. And even more bad news, the title company you closed with is no longer in business. What do you do? If have purchased owner’s title insurance you file a claim with the title underwriter and they will work to resolve this issue. If you do not have title insurance you will have to hire a lawyer and potentially, if it cannot be resolved any other way you could have to pay that lien off to sell your house.
- Someone knocks at your door and says she is the wife of the seller who sold you the house and she wants to know why you are in her house? You then find out that the woman who signed your deed was in fact, not the seller’s wife but his girlfriend. You have several immediate problems; fraud was committed in the sale of the property and you do not have good title to your home, also the person is probably due money from the sale which has already been given to the husband. What do you do? If you have owner’s title insurance you file an immediate claim because clearly fraud was committed and this woman has a claim against your property, your title is not good at this point. If you do not have owner’s title insurance you hire a lawyer to work through this and, at worst case you could have to pay this woman money to sign off her rights to the property.
- You purchased your property and went to the title company where the seller suggested you go, his lawyer would handle everything. So you go to closing. About 1 month later you receive a notice of condemnation from the State of Virginia that you have to evacuate your property in accordance with the condemnation agreement. Well, you didn’t know there was a condemnation agreement, the seller has already been paid by the State and you have to move immediately. You have a mortgage that will need to be paid off and you have to buy a new house. What you did not know at the time was that the seller and his attorney already knew all this and sold the house under false pretenses because the condemnation was already in process. What do you do? Well if you purchased owner’s title insurance you run as fast as you can to file a title claim and the title company will take over so you can know what to do and give you the means to do it. Without a owner’s title policy you have to hire a lawyer and figure out how to deal with this horrible situation.
Does this Help you Understand Title Insurance?
In our industry, it is best to educate all parties on Title Insurance, what it does, and how it protects both sellers and purchasers. When purchasing or refinancing your largest asset (your home), it important to protect it as much as you can. As the “real life” cases above prove, it is important to buy an Owner’s Title Insurance Policy. If these parties had Owner’s Title coverage in place their terrible events would have been covered and claim paid by the Title Insurance company. When the new forms and regulations come into effect this fall, the importance of purchasing an Owner’s Title Insurance Policy cannot be understated.
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