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About Title Insurance
Here are some frequently asked questions regarding title insurance.
How does title insurance work?
Title search and examination - The public records are searched and examined to obtain pertinent information on the property, on the buyers, and on the sellers. Title searches reveal proper legal description, tax information, mortgages, judgments, pending litigation, agreements, estate information, easements, restrictions, etc., anything that would present a problem in the chain of title. Each document of public record is examined for title defects.
Commitment - Based upon the title search, a commitment to insure is issued to the lender for information in processing the loan. The commitment gives property tax information, the current owner, a legal description of the property, and potential problems in the chain of title. It also states the conditions under which a final title insurance policy will be issued, listing exceptions and requirements applicable to the property.
Title Insurance Policy - After the closing, an owners title policy (if purchased) is mailed to the new owner and a loan policy is issued to the lender. The policy names the insured, amount of coverage, property address, title risks, exclusions, how to handle claims, liability coverage, etc., and is similar to other insurance policies. The policy is issued after the warranty deed and deed of trust are recorded to reflect the most recent information on the property and insures through the date of the deed or the deed of trust.
What are the costs of Title Insurance?
Our office can provide you with exact quote of title insurance charges based on the purchase price and/or the loan amount. The following is provided for informational purposes only. It should not be used to calculate title insurance charges on your particular transaction.
Title Insurance Costs - Title insurance charges are established and regulated by the Tennessee Department of Commerce and Insurance. Davidson, Shelby, Knox and Hamilton County, Tennessee, have urban rates, (starting at approximately $6.00 per $1,000) which are higher because they usually include all title search and examination fees. However, in Rutherford County (and other non-urban counties), owners policy charges are based on the sales price of th home, using a base rate of $4.00 for the first $50,000; $3.50 for $50,000 t0 $100,000. etc. Loan policy premiums start at rate of $3.00 per $1,000 (loan amount), and increase on a scale similar to an owners policy. To this rate, title agenst are allowed to add a fee for their title search and examination. Greenway Title generally charges a fee of $175.00 for a title search and examination. If a search is extensive or difficult title issues are associated with the property, a higher examination fee may be charged.
Simultaneous issue - When an owners policy is purchased, a second policy can be simultaneously issued at a reduced rate. In this situation, an owners policy is purchased at the owners rate, and the required loan policy is simultaneously issued at a flat rate of $35.00.
However, it is not necessary to purchase an owners policy of title insurance. Most lenders require buyers to purchase a loan policy to protect the lender in the event of problems in the chain of title or to assure it will have clear title to the property in the event of foreclosure. NOTE: A loan policy provides protection for the lender only, and cannot be used for the benefit of the owners of the property in the event of a claim.
Who pays for title insurance?
This is a negotiable issue which should be discussed at the time the contract is written. In Rutherford County, title insurance is usually charged to the buyers. In other counties, the seller typically pays the expense. Contracts should be very specific as to who pays for title insurance. If a seller agrees to pay for closing costs, contracts should specify whether search fees and title insurance charges are to be included, or whether the seller is going to provide for closing costs in addition to title insurance.
What determines the cost?
Other types of insurance policies provide coverage for events that may occur in the future which are unknown at the time a policy is issued. In those instances, certain risk factors can be assessed but most of this information is unobtainable. Since title insurance is largely based on search and examination of the public records for missing or incorrect information, people must be paid to review the records, thus reducing the risk of a claim. Many hours are spent prior to issuing a title policy, so the one-time price is slightly higher than other insurance products because much work goes into the risk elimination process.
Why should I (or my client) buy title insurance?
(1) Security. A title insurance policy will reimburse any owner or lender for damages, costs, actual losses sustained, etc., as a result of a covered title defect.
(2) Risk elimination. For most mortgage loans, lenders require a loan policy to protect their investment in the event of foreclosure. However, individual buyers are NOT required to purchase title insurance. Any current or future equity could be lost in the event of a title defect because a homeowner is not covered by a loan policy in the event of a title defect. Both policies are purchased to eliminate risk.
(3) Reissue credit. If an owners policy was purchased at closing and the property is refinanced, a reissue credit is given toward the purchase of a new loan policy. The amount is based on the original amount of the first policy, must be no older than seven years, and must be furnished at the beginning of the loan process (and not at the closing table). The title searcher and the underwriter can rely upon information contained in the prior policy, which is the reason for the credit. Also, at the time the property is resold, an owners policy can be used for the benefit of the new buyer, or if the seller is paying for title insurance expenses as part of the contract.
What is an example of a title claim?
Sensational story #1: Notice was posted on your door that your property was taken by the government because the seller distributed child porn through an illegal website. Some laws allow the government to do this. The title search should have revealed a pending lawsuit, judgment, or other information about the problem, but either a searcher missed it, or through a governmental error, notice was not recorded in the public records and you bought the property. If you did not buy an owners policy, who would defend your rights and attempt to recover your investment? Your attorney! Who would pay for the attorney? YOU.
Sensational story #2: You bought a new house. One day while you are in your PJs, a strange man uses his key to open the door of your house and asks you what you are doing in his house! You later discover that the man=s nephew, who was house-sitting while he was out of the country, fraudulently sold your property, forging his uncle=s name to the deed and is spending your money in the tropics. Did you buy an owners policy? No? You may have lost your house and your investment unless your attorney can prove it should belong to you.
Not-so-sensational stories but more realistic: Back taxes were not collected from the seller at your closing and the title company is out of business; the spouse of a borrower did not sign the deed of trust and quit making payments, so the lender cannot foreclose without expensive legal fees in obtaining the wife=s consent; some stray step-children did not know they had an interest in your property even though it was long ago developed and sold to you and your neighbors; heirs to wills are missing; illegitimate children have an interest in property sold without their consent; a right of first refusal to purchase property hidden was in deed language; subcontractors are unpaid after constructing a new home; an improper acknowledgment or execution of a document; and the list goes on and on.
These are examples of everyday, common occurrences and result in claims processed by LandAmerica/Lawyers Title, the title insurance company who will underwrite your policy.
What real estate agents should remember!
Many real estate agents provide advice to their clients to help them save money during the buying process. They tell them that a title search has been done on the property, or they know the owner and there are no problems with the title, or they make representations about ownership and interests in the property, misleading their customers.
Some agents advise that clients do not need an owners policy and should not buy it. In the case where the buyers do not have much cash invested in the property, they have little to risk. However, remember that in the event of litigation, it is the usual practice among attorneys to file suit against all parties involved in a transaction, including real estate agents who have advised that an owners policy was not necessary and should not be purchased.
For additional information on title insurance, please visit www.OldRepublicTitle.com.
Form 1088-135 (2.1 ) Hi- Res (2.1M) PDF Lo-Res (704KB) PDF
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