Title Insurance

Title insurance: You can't avoid it. If you're buying a home, your bank is probably forcing you to buy title insurance. But just because you have to buy it doesn't mean you can't save yourself some money by knowing a few of the basics.

Unlike other forms of insurance that focus on possible future events and charge an annual premium, the American Land Title Association (ALTA) explains that title insurance is purchased for a one-time payment and is a safeguard against loss arising from hazards and defects already existing in the title.

Title insurance protects the bank against mistakes made in a title search. A title searcher, who should be licensed and bonded, checks on details such as making sure there isn't a lien against the title, or that the person you're buying the house from really owns it.

An error made during this search could result in the bank collecting on the value of the mortgage from the title company while you continue paying a mortgage on a home you no longer own. Claims on title insurance are rare compared to other types of insurance, with the title industry paying claims equal to about 5.4 percent of operating income compared with more than 80 percent for property and casualty insurers, according to ALTA's figures.

Common types of title insurance claims are for the cost of back property taxes that the title company missed in researching a sale, or the cost of a settlement with a neighbor whose new driveway or fence crept across a property line.

Title insurance usually covers the amount of a mortgage, with the policy's value declining as the mortgage is paid off. The premium is paid once — when the loan is taken out — usually by the borrower (that's you). Rates typically are several tenths of a percent of the mortgage amount — often in the 0.4 to 0.7 percent range — or $600 to $1,050 for a $150,000 loan.

A consumer who wants to share in the lender's peace of mind can get title insurance as well when his home loan is closed — for several hundred dollars more. The second policy would cover you, who, without it, wouldn't be protected at all from a title problem. Generally, only the policy protecting the lender is required. Protection for the home buyer is optional.

Not all lenders require title insurance on second mortgages, but many who focus on a higher-risk market — large second-mortgage loans or loans turned down by banks but accepted at higher rates by finance companies — do require title insurance. It should cost slightly less than the title coverage on a large first mortgage — perhaps 0.3 or 0.4 percent.

What's a savvy shopper to do?

There's not a lot you can do to avoid the expense of a title policy when you're buying a home, but here are some ideas to lower your cost:

  • Ask the seller to pay for your coverage. That's actually a requirement in some states and something that can be negotiated in others.
  • Find out whether you can get the current title policy already on the house reissued to you by the title insurer or the lawyer doing the new title search. That can save hundreds of dollars, since it will mean a less-involved search if the policy isn't too old. You probably won't be told if that can be done, so be sure to ask.
  • If you buy your own policy in addition to the lender's policy, check your title policy for exceptions that may leave you with less protection than you want. If any exceptions are a concern, ask the title insurer if they can be taken off the policy.
  • Shop around. Investigators in several states have charged that real estate agents are getting kickbacks from title insurers to steer business their way. Honest insurers don't pay kickbacks, of course, and prices vary. Don't be afraid to find yourself the best deal.

Why Should You Have It?

When you buy a home, you want to be certain it's safely yours. But even the most diligent search of the public records could fail to disclose a number of title defects.
    Things such as a forged will or deed. Or a title transfer by someone under age. Or a married person conveying real estate without his or her spouse. Or fraudulent impersonations. Secret marriages. Undiclosed heirs. Invalid divorces. False affidavits. These are just a few of the problems that can suddenly surface. Without the protection of title insurance, you'll be in jeapordy of losing your investment.

How Title Insurance Protects

    A service known as a title search describes - as well as possible - the condition and quality of the title to the land you are buying. Then, your title insurance protects you against mistakes or threats that might otherwise result in financial loss to you - including those hidden, unknown items.
    Your title insurance protection is a permanent assurance that your ownership and use will be defended promptly against claims at no cost to you, whether the claim is valid or not.

Who Title Insurance Protects

    There are two basic types of title insurance protection - one for the mortgage lender and one for the homeowner or real estate investor.
    If a mortgage is to be placed on your new home, the mortgage lender will probably require that you purchase title insurance to protect the institution's position as a holder of a mortgage loan. But this mortgagee's title insurance policy doesn't protect you, the homeowner. You need an owner's title insurance policy to protect your investment.
    You pay only once. There are no renewal premiums, and there is no expiration date on the policy. Yet the protection lasts as long as you, or your heirs, retain an interest in the property.

A Small Cost For Years Of Protection

    The real estate you own represents stability, permanence and the hope of the future. Don't take a chance and let your property be taken from you because of a flaw in the title. It makes good sense, for the relatively small amount it costs, to protect yourself with title insurance.


Copyright ©2003 BlackPage Title Agency, Inc.