The Importance of Title Insurance
There are so many facets to purchasing a mortgage; one of the most important and perhaps least understood is title insurance. Simply put, title insurance is required by lenders looking to protect themselves from any other liens against the property you are purchasing.
Well, that wasn’t very simple. Let’s try again: when you purchase a home, several people have recorded their rights to your property. For example, the utility companies have certain rights to come on your property to install lines, bury lines for power, water, cable, internet. The county and state have certain rights to your property in order to make sure they can install or place things on your property. So, the title to a property reads like a foreign language to most home buyers. But you are required to purchase title insurance just the same!
Here are some things to look for and ask your attorney or title company
Do I order the title insurance?
- Title insurance is ordered once you have a fully ratified contract and you have chosen an attorney or title company to conduct your closing.
- When choosing a title company or attorney, they will touch base to talk about the things they need from you. You’ll have ten days to make the decision.
- Once your title company and/or attorney is in place, they will hire a title researcher. The title researcher will go an review the records on your property generally for the last 60 years. UNLESS they have been requested to only update from last transfer of ownership.
- It is their responsibility to be thorough and look for anything that may stop you from being the sole owner of the property (along with your lender until the loan is paid off).
- The report then goes to a title underwriter who puts together the binder and the policy that is required by the lender. This person makes the decision that property meets the title insurers risk thresholds.
Are there any unusual setbacks or easements on my property? Do I have room to add on in the future based on my easements and setbacks and rights of way?
Did you know there are 2 things that you sign at closing?
One is the NOTE (financial responsibility), other is the Deed and Deed of Trust (legal responsibility). These two are separate because one is financial and other is legal.
Can you show me where all the utility companies can go on my property?
Do I need a survey?
I would highly suggest getting a survey. This an additional cost but it can make a real difference in knowing your property lines. You generally need a survey if you are going to put a fence up, if you are going to add a patio to your property. Anytime the permanent footprint of the home is altered you need a survey. Some title companies will issue a new title policy without a survey BUT make sure you get a copy of the most recent survey completed on the home you are purchasing OR get your own survey.
The lender requires title insurance but Owners is optional. Why would I purchase owners title insurance?
- If the title has been reviewed and you become a recorded owner, if after closing it is discovered there is an unreleased lien, or encumbrance not made known to you at closing. The mortgage company is insured against that mistake because they required you to get title insurance BUT if you did not get owners you are not insured. This means that you could have a financial responsibility to the property but not have full legal ownership.
- In another scenario, it could be discovered the house was in bankruptcy previously and it went undiscovered in the title search that your attorney ordered. Well, that could take precedence over your ownership and you again could be financially responsible but be in a legal mess.
You can reduce the cost of title insurance by using the seller’s policy and have it updated.
This is a very common practice.
What can take precedence over your lien?
Tax liens can take precedence. If you are refinancing and don’t receive a paid in full note from previous lender, call them to make sure it has been paid and their lien has been released.
I hope you’re enjoying this series on the “in’s and out’s” of the mortgage process. Next time, we’ll talk about another form of insurance… mortgage insurance! If you’re ready to get your process started today or have any questions, give us a call at 804-274-1200 or via email: [email protected]. Thanks for reading!