What is Title Insurance?

Title Insurance is insurance against loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. It is available in many countries but it is principally a product developed and sold in the United States. It is meant to protect an owner’s or lender’s financial interest in real property against loss due to title defects, liens or other matters. It will defend against a lawsuit attacking the title as it is insured, or reimburse the insured for the actual monetary loss incurred, up to the dollar amount of insurance provided by the policy.

Typically the real property interests insured are fee simple ownership or a mortgage. However, title insurance can be purchased to insure any interest in real property, including an easement, lease or life estate. Just as lenders require fire insurance and other types of insurance coverage to protect their investment, nearly all institutional lenders also require title insurance to protect their interest in the collateral of loans secured by real estate.

Title Insurance offers the owner one additional valuable service. A Commitment for Title Insurance provides the record status of title to the land before you buy, including any encumbrances, current limitations on ownership rights, covenants, restrictions, licenses, private or public easements, rights-of-way, etc.

Where did Title Insurance come from and how long has it been issued?

Title insurance is an exclusively American invention. Its purpose was well stated in the first advertisement for title insurance back in the late 1800s:

“This company insures the purchaser’s of real estate and mortgages against loss from defective titles, liens, and encumbrances. Through these facilities [the] transfer of real estate and real estate securities can be made more speedily and with greater security than hereto before.” [Circa 1876]

Protecting purchasers against loss is accomplished by the issuance of a title insurance policy, which states that if the status of the title to a parcel of real property is other than as represented, and if the insured suffers a loss as a result of title defect, the insurer will reimburse the insured for that loss and any related legal expenses, up to the face amount of the policy.”

The history of title insurance dates back to 1868, in Philadelphia, a transaction was consummated which demonstrated very forcefully the necessity of having some further type of protection than there mere examination of the records. This very transaction can be traced to reveal the coming into existence of the land title insurance industry.

All the facts are to be found in the Pennsylvania Supreme Court case of Watson vs. Muirhead, 57 Pa 161:

In this case, a conveyancer conducted a title search and disclosed the existence of a judgment. He noted the judgment and turned the abstract over to a well-qualified attorney for a legal opinion as to the effect of the judgment. The attorney advised that the judgment was not a valid lien on the property and, based on the information, the purchaser completed the deal.

Shortly afterward, execution was issued on the judgment and the property was sold at Sheriff’s Sale. There was some later litigation and the courts held that the judgment was a valid lien and the Sheriff’s Sale was good.

As a result of the loss incurred in this transaction, for which the attorney and the conveyancer were held not liable, a group of individuals interested in the law of real estate decided that something should be done to protect innocent investors from such similar hazards. Subsequently, title insurance companies were organized in other cities – among them, New York City, Chicago, Minneapolis, San Francisco and Los Angeles. As the industry grew, title companies and their agents began providing essential services to real estate buyers, sellers, lenders, brokers, attorneys, developers, builders and others. Following World War II, returning serviceman began to buy homes in large numbers; the title industry began to change from an essentially local enterprise to business on a national level. Yet despite this national lending/investment environment and the advent of a national secondary mortgage market, title work continues to be based on local law and custom.

With the advent of new types of mortgages and the rapid growth of an aggressive secondary mortgage market, title insurance companies have responded to investor needs by creating new policies offering innovative coverages. Title companies in some locations have seen their functions evolve into much more than just title searching. Today, many are involved in completing all aspects of the closing process, from preparation of documents and recording instruments, to preparation of closing forms and collecting and disbursing funds.

The title insurance industry continues to provide security to real estate investors, especially as rapid and dramatic developments drive the real estate market. From a single-family home purchase to a multi-million dollar commercial transaction, real estate investors in this country will continue to receive title protection at a level of excellence unequalled anywhere in the world.

How does Title Insurance differ from other types of Insurance?

Title insurance differs significantly from other forms of insurance. While the functions of most other forms of insurance is risk assumption through the pooling of risks for losses arising out of unforeseen future events (such as death or accidents), the primary purpose of title insurance is to eliminate risks and prevent losses caused by defects in title arising out of events that have happened in the past. To achieve this goal, title insurers perform an extensive search of the public records to determine whether there are any adverse claims to the subject real estate. Those claims are either eliminated prior to the issuance of a title policy or their existence is excepted from coverage.

It is an insurance policy that protects the insured against loss should the condition of title to the land be other than as insured. Unlike other types of insurance that offer protection against future possible occurrences, title insurance offers protection against past occurrences which could result in a claim at a future date.

Why Should I buy Title Insurance?

Title insurance is necessary to protect one of the most important investments you’ll ever make - your home. When you buy a home - or any property for that matter - you expect to enjoy certain benefits from ownership...to be able to occupy and use the property as you wish, to be free from debts or obligations not created or agreed to by you, and to be able to freely sell or pledge your property as security for a loan. Title insurance is designed to cover these rights. Without an owner’s title insurance policy, you may not be fully protected against errors in the public records, hidden defects not disclosed by the public records, or mistakes made during the examination of the title of your new property. As a result, you may be held fully accountable for any liens, judgments or claims brought against your new property. However, your owner’s title policy insures that if such an occasion arises, you will be defended, free of charge against all covered claims and paid up to the amount of the policy to settle valid claims.

Title Insurance is a great value! For a one-time premium, your title underwriter agrees to reimburse you for loss due to defects existing prior to the issue date of your policy, up to the policy amount. And, should it be needed, the policy also provides for the cost of legal defense of your title.

Coverage continues in effect for so long as you have an interest in the covered property. If you should die, the coverage automatically continues for the benefit of your heirs. If you sell your property, giving warranties of title to your buyer, your coverage continues. Likewise, if a buyer gives you a mortgage to finance a purchase of covered property from you, your coverage continues (subject to limitations) to protect your security interest in the property. Title insurance provides the insured with “peace of mind” in knowing that you are receiving good and marketable title to the real estate you are purchasing. Here’s an additional “100 Reasons to Buy Title Insurance (well, almost).”

We think you should call before your contract for sale or purchase is signed. Many times our personnel can give you great tips and insight to help you facilitate the transaction, saving you stress and anxiety. Once you’ve agreed to your transaction, our team of title experts will begin a search of the public records and issue a title commitment. Because there are a number of steps we must take to make certain that we know all we can about the title, it is wise to get the ball rolling as soon as possible.

My lender has a title policy, why do I really need one?

Although Title Insurance can be purchased to cover a multitude of different types of ownership, the two main types are:

1. A Lender’s Title Insurance Policy is required by most FHA, VA & Conventional Lenders. Typically the lender requires you to purchase this policy. Generally, the policy only insures that the financial institution has a valid, enforceable lien on the property. Different Endorsements provide extended coverages to the Lender. Many of a Lender’s Title Policy coverages don’t become active unless the Lender takes title to your property. Additionally, the lender’s coverage is only for the amount of your loan, reducing as you payoff the mortgage. Eventually disappearing at the time of payoff, leaving your hard earned equity unprotected!
   
   Also, in the event of an adverse claim, the Lender would ordinarily not be concerned unless its loan became non-performing and the claim threatened the lender’s ability to foreclose and recover its principal and interest. And in the event of a claim, there is no provision for payment of legal expenses for an uninsured party (i.e. you). When a loan policy is being issued, the small additional expense of an owner’s policy is a bargain!
   
2. An Owner’s Title Insurance Policy on the other hand, is designed to protect you from title defects that existed prior to the issue date of your policy. Title troubles, such as improper estate proceedings, undisclosed pending legal actions, lost or forged deeds, undisclosed heirs, deeds executed by incompetents, un-filed mechanic’s liens, incorrectly indexed deeds and deeds by minors, are just a few of the potential dangers that might put your equity at serious risk. If a valid claim is filed your financial loss, and the full costs of any legal defense of your title, is covered up to the face amount of the policy. Additional comprehensive coverages are also available with the relatively new Florida Form 9.2 & 9.1. Ask our title professionals about these valuable extended coverages. An Owner’s Title Insurance Policy can also protect you after you sell the property. Typically properties are conveyed with General Warranty Deeds, which may make you responsible to the new owner for previous defects in title. Although your Owner’s Title Insurance doesn’t protect your acts during ownership, it continues to protect you from matters prior to your purchase. Yes, it’s quite a bargain!

The Owners of the property I'm buying already have title insurance - won't that cover me?

A title policy insuring the current Owners does not directly protect you and its coverages are not assignable. Also, a great many things could have happened to the land since the Owner's policy was issued. Liens, judgments and unpaid taxes from the current owners may not be disclosed until after you purchase the property - causing you aggravation and costing you money.

What does Title Insurance Cost?

The cost is relative to the value of the property. The higher the value, the more coverage is needed thus the higher premium. The State of Florida, after periodic review, sets the "Promulgated Rate" or premiums based upon the coverage amount. The premium is small compared to the total purchase price. The premium is paid once and is in force for as long as the property is owned by the insured and continues to protect the insured on warranties after it is sold. In addition, in most cases it also protects your heirs at law.

How long does my Title Insurance coverage last?

For as long as you or your heirs retain an interest in the property and, in some cases, even beyond. An Owner's Title Insurance Policy can also protect you after you sell the property. Typically properties are conveyed with General Warranty Deeds, which may make you responsible to the new owner for previous defects in title. Although your Owner's Title Insurance doesn't protect your acts during ownership, it continues to protect you from matters prior to your purchase. Yes, it's quite a bargain!

How does Title Insurance protect my investment if a claim should arise?

If a valid claim is made against your property, title insurance will, in accordance with the terms of your policy, assure you of a legal defense - and pay all court costs and related fees. Also, if the claim proves valid, you will be reimbursed for your actual loss. Both legal defense and losses collectively are paid up to the face amount of the policy.

What is Title?

Most people have a misconception of what "title" really is. This misconception is typically described as whose name is on the most recent deed. However, the most accurate description of a title is a bundle of rights in real property. Picture a bundle of toothpicks wrapped in a rubber band. Each toothpick representing a right in property. One the right to possess; the next one the right to exclude; another being the right to mortgage, etc... etc... This "bundle of rights" is referred to as "Title". This title theory is the foundation of property ownership in most of the United States. Commonly when someone holds title, they have the majority or all of these "toothpicks" or "rights".

What is a Title Search?

A title search is a thorough review or examination of the public records that pertain to real property ownership and the rights/limitations of its use. The search period begins with the current owner(s) and usually extends back in time for a period of at least 30 years (commonly referred to as the “chain of title”). All documents affecting the subject property are reviewed for accuracy, completeness and proper execution. These records include deeds, court records, property and name indexes, judgments, liens and assessments, as well as many other documents. Similarly, all owners of record during the search period are indexed to determine their ownership interests, marital status, legal and mental capacity, and judgments/liens against the parties.

A title search is the means of determining that the person who is selling the property really has the right and ability to sell it, and that the buyer is getting all the rights to the property (title) that he or she is paying for.

What kind of problems can a Title Search reveal?

A title search can show any number of title defects, liens, and other encumbrances and restrictions. Among these are unpaid taxes, unsatisfied mortgages, judgments against buyers/sellers and any restrictions or conditions limiting the use of the land. A previous deed may have an incorrect legal description or a previous owner could have incorrectly stated his/her marital status resulting in a possible claim by their legal spouse.

Are there issues and problems a Title Search will not reveal?

Any number of problems that remain undisclosed after even the most meticulous search of public records can make a title defective. These hidden “defects” are dangerous indeed because you may not learn of them for many months or years. Yet they could force you to spend substantial sums on a legal defense, and still result in the loss of your property.

For instance, the previous owner could have incorrectly stated his or her marital status, resulting in a possible claim by a legal spouse. Other hidden hazards include fraud and forgery, defective deeds, mental incompetence, confusion due to similar or identical names and clerical errors in the records. These defects can arise after you’ve purchased your home and can jeopardize your right to ownership.

What is a Title Commitment?

A title insurance commitment is a contract to enter into a contract. Sounds confusing, doesn’t it? Well the title insurance underwriter (example: Old Republic National Title or Commonwealth Land Title Insurance Company), though their agent (example: Title Source USA, Inc.), promises the proposed insured (i.e. Buyer or Lender) that if all the conditions and requirements set forth in the commitment are satisfied, the underwriter will issue an Owner's or Lender’s Policy of Title Insurance on the terms and subject to the exclusions listed in the commitment.

A title insurance commitment is not an abstract of title and will not necessarily list every arguable cloud on title. The title agent ordinarily reviews the record title before issuing the commitment. The underwriter's internal policies and procedures, together with state law, will govern the scope of the examination. Not every search will go back to the government patent, or even to the root of title under marketable title statutes. As a result, Schedule B, Section 2 of the commitment ordinarily will show only those risks that the underwriter is unwilling to insure.

How do I read a Title Commitment?

Here’s a general outline of a title commitment and its explanation.

Schedule A: This portion of the title commitment contains basic information about the proposed transaction:

Item 1: Effective Date:   The status of title is effective thru this date.

Item 2: Policy or Policies to be issued:

a)         Proposed Policy Amount and Insured (Owner Policy) : The Name of the Proposed Insured Purchaser and the amount of coverage

b)         Proposed Policy Amount and Insured (Mortgagee Policy): The Name of the Proposed Insured Lender and the amount of coverage 

Item 3:          The type of estate to be insured: Usually “Fee Simple”

Item 4:  Current record title owner or those that have a record interest in the Property

Item 5:  The Legal Description of the Property

Schedule B-I: This is without a doubt the most important part of the title commitment. It contains the requirements that must be met in order for the title policy to be issued. This portion will list existing liens and encumbrances that must be paid at closing. It will also list any title defects; items such as federal or state tax liens, abstract of judgment, pending lawsuits, etc. It will also show any matters that adversely affect the title, or matters needed to restore the title. Marital status questions, bankruptcies, probate matters, homestead questions, and other items may show up here.

    Schedule B-II: This portion contains a list of preprinted exceptions that the title policy will not cover. In addition to these preprinted exceptions, you will also find other matters that will not be covered, such as Restrictive Covenants, Easements, Rights-of-Way, Mineral Exceptions, etc. It’s a good idea to ask your title insurance professional for copies of these exceptions in order to acquaint yourself with these items.

How to choose your Title Insurance Company?

PRICE: Price is Important, Value is more Important! You should search for a closing agent or title company that offers you a savings on title insurance, closing costs, title search & exam, and courier fees, etc. You may be entitled to a discounted rate on your title insurance policy. If you are refinancing and have a previously written Owners or current Lender’s Title Policy, ask if you qualify for a "reissue rate” or “substitution rate”. Title companies may not offer the discounted rate unless you ask for it. The savings could be 30 percent or more of the original title policy. In Florida there is a "Butler rebate" decision which led the way in allowing title insurers to deeply discount their fees on title insurance, and now on closing fees. Ask about these discounts. You may find savings on other closings costs as well, such as escrow fees, title and search fees, courier and notary fees, etc. Determine the cost of all charges involved in advance of the closing, not just the Title Insurance. Get your quotes in writing. Price is Important, Value is more Important! We encourage you to judge not only on price, but on Service, Technology, Reputation, Experience and Underwriters. IT’S REALLY ABOUT VALUE!!!

SERVICE: Title Companies and Closing agents are not all alike. Title insurance rates and closing fees vary from company to company, but you may not be aware of the differences in service you will receive from one company to the next. Many borrowers also are not aware that they have the right to choose title insurance agents. Under the Federal Real Estate Settlement Procedures Act (“RESPA”), the seller cannot require you to buy title insurance from a particular title company. The lender may request that you use a title company it finds acceptable, and it likely will recommend some companies, but in most cases you have the choice. In the end, the lender usually agrees with your pick.

This power of choice is a tool you can use to be sure your closing goes as smoothly and quickly as possible. Closing is about preparation, service and anticipating your needs before and long after the closing. Making the right choice on service is a major component of Value and can save you thousands of dollars in the long run.

REPUTATION: When choosing a Title Company, Closing Agent or Escrow Officer an important component is their reputation in the community. Ask the number of years the company has been in business. Ask your friends and acquaintances who have had recent experience with real estate transactions to recommend a company or an individual they have been pleased with, one who met all their expectations. Inquire among friends as to the reputation of the individual officer or Title Company in your local community. Ask your friends if the escrow agent they recommend returns phone calls promptly, explains details in everyday understandable language, inspires confidence, is knowledgeable and acts in a professional, courteous manner.

TECHNOLOGY: Does the Title Company use a "transaction-management system" or other means of receiving/delivering documents? Can Realtors, Lenders, home buyers and sellers log into this system to monitor the status of the closing? Are they set up to receive lenders “digitally delivered documents" from Lenders quickly and efficiently. It’s critical to be able to receive last-minute changes, corrections and additions to your loan documents. How good is their bank’s wire room? Do they get instantaneous notifications of arrival of funds? Things sometimes move fast at closings. Access to funds and documentation can mean the difference between closing and not closing. It can cost your money! Again, it’s all about Value!

EXPERIENCE: The Title Company should able to comply with the terms and conditions of your contract, strive to be as confidential as possible, answer your questions, and clear up any title problems which may arise. Management experience and Professionalism, as well as knowledge, friendliness and efficiency are critical. Ask lots of questions about their previous experience. Have they handled many FSBO transactions? Do they have a good working relationship with lenders and understand loan documents? Do they have experience in handling possible title problems? Choosing the company to handle your sale can mean the difference between a smooth rapid closing or a complicated, delayed closing, fraught with anguish and extra cost. Again, this is part of Value.

UNDERWRITERS: A great indication of the quality of your Title Company is the identity of their Underwriters. The five major national title insurance companies are LandAmerica Financial Group (Commonwealth Land Title & Lawyers Title), Old Republic Title Company, Fidelity National Financial Inc., First American Corporation, and Stewart Title Guaranty Company. These underwriters comprise the vast majority of all transactions in the United States. The top Title Companies and Agents have the top underwriters, simple as that. Title Source USA, Inc. is proud to represent both Old Republic National Title Company & LandAmerica Financial Group. Another indicator of Value!

THE FINAL DECISION: Your choice of escrow or closing agent may be one of the most important decisions you make to arrive at your final goal of a timely real estate sale or purchase. Although price is a major factor in choosing a title company, good service, reputation, access to technology and the ability to pay claims should also be considered. You will want to try to select the most reputable and professional escrow or closing agent you can find, combined with the one who also charges the most reasonable fees. In the end, It’s about Value.

How should I prepare for my closing?

1. Make sure you or your Realtor submits the most up-to-date version of your sales contract to Title Source USA, Inc. This includes all amendments that affect the sales price, earnest money deposits, closing costs allocation or amounts to be paid by seller, etc. The sales contract provides key information to the closing agent in preparing your closing.
2. Provide your closing agent with the full legal names of all parties who will take title to the property, including their marital status and name of spouse. Florida is a “homestead state.” When purchasing a homestead property, regardless of whether your spouse intends to hold title, your spouse must sign or join on any mortgage.
3. If the property being purchased is a Condominium, make sure you apply to the Condominium Association for approval of ownership. Most condominium associations require a potential purchaser to be approved prior to closing. You should also obtain a copy of the Condominium Association Documents prior to closing for your review.
4. If you’re taking title in the name of a Limited Liability Company, Corporation, Partnership, Limited Partnership or Trust, provide your closer with copies of any Articles of Organization, Operating Agreements, Partnership Agreements and Trust Documents prior to closing.
5. Are any of the Purchasers or Purchasers' spouses not going to be able to attend closing? If any party is unable to attend closing, they must either sign documents in advance or be represented by an attorney-in-fact at closing. Title Source USA, Inc. will need to review and approve any Power-of-Attorney prior to closing.
6. Obtain all necessary insurance policies (Homeowners, Wind & Flood) and furnish a copy & paid-in-full receipt to Title Source USA. Sometimes we are asked to remit payment as part of closing. If so, please make sure to furnish an invoice from your insurance agent along with their mailing address for payment.
7. Have all inspections of the property scheduled well before closing. Make sure your final walkthrough inspection is scheduled at least 24 hours prior to closing.
8. If your contract requires a survey or your lender requires one as a condition of your loan, order a survey from a registered land surveyor well prior to your closing date. Title Source USA maintains a list of reliable surveyors and will be happy to assist you with the order.
9. Make sure your closing funds are fully available in cash or cashier’s check. Title Source USA cannot accept personal checks or checks drawn on a money market fund.
10. Schedule your closing with the Seller, Realtors, Lenders and confirm it with Title Source USA, Inc. well prior to your expected closing date.
11. Confirm the driving directions to Title Source USA.

What should I bring to my closing?

1. Anyone appearing on the contract or who you expect will be on the title to the property you are purchasing must be at the closing. If the property being purchased is to be the homestead of anyone to be placed in title and a mortgage is being executed as part of closing, all parties must bring their spouses.
2. All parties must bring valid & current government issued picture identification. Examples of acceptable forms of ID include: Driver’s Licenses, State Issued ID cards, Passports, Military Ids, United States Government Alien Green Cards. Originals only, not copies.
3. Bring a Certified Check, Cashier’s Check, Official Check or Teller’s Check (depending on what type of institution you draw it on). If the check is drawn on an “out of area” financial institution, be prepared to furnish the phone number and contact name of that bank or credit union for verification.
4. Bring all original applicable insurance policies (Homeowner’s, Flood & Windstorm) and provide a receipt showing payment in full for at least one year.
5. Any information or documentation requested by your lender (tax returns, marriage licenses, social security cards, HUD-1 or settlement statements from recent sale of other property, etc.). Often these are lender closing requirements and are necessary in order that we can complete the transaction. Additionally, if your lender requires you to pay off certain accounts or creditors at closing, please bring the latest account statements or payoffs so that we can have the most accurate information.

What is a HUD-1 Settlement Statement?

This is a summary or account form used to illustrate the financial portion of the real estate transaction. The title company or closing agent is required by the Department of Housing & Urban Development to use the “HUD-1” or “HUD 1A” form on virtually all one-family to four-family residential real estate transactions involving a lender. This closing statement will list the purchase price and/or loan amount, closing costs for the borrower/buyer and seller, if applicable. It will show all sums being charged and disbursed to the parties involved. It also clearly summarizes the total amount due to/from the Borrower/Purchaser and to the Seller. Here’s an example of the standard form.