Title Insurance
Introduction
Title Insurance: A Differential from Homeowner's Insurance
• Title insurance protects both the homeowner and the lender against loss of home's value due to liens, encumbrances, or defects in the title.
• It differs from other types of insurance as it covers past and existing liability that was not caught at the time of closing.
• For instance, if a contractor filed a $40,000.00 lien on the house, title insurance transfers the liability to the insurer who would pay or defend against the action.
• The premium is paid once at the time of closing, unlike home insurance which pays the premium yearly.
• The coverage protects the owner for as long as they own the property.
• If refinancing, a new title insurance policy is required as it needs to be protected from the original purchase date to the refinance date.
Title Search
A title search is a crucial process performed by an attorney or title agent before a property sale to ensure it is owned free and clear, and any existing liens or mortgages are paid off at the time of closing. The search determines if the seller has a saleable interest in the property, if there are restrictions or allowances pertaining to land use, if any liens exist on the property, and if the purchaser has access to the land. If defects are discovered, the title insurance company must decide whether to attempt to cure the problem, insure over the problem, or exclude those defects from coverage. If defects arise later, title insurance coverage protects the buyer. The resulting report is called an Abstract or Abstract of Title, which is required by the bank or mortgage company before any loan can be approved. The underwriter is responsible for authorizing and issuing title insurance policies, assuming financial risk and insuring the property against insurance defects. A title agent or approved attorney must meet strict standards to remain an agent or attorney for a particular underwriter.
Regulation
Title insurance is regulated by both federal and state authorities, with the Pennsylvania Insurance Department overseeing rates. The Real Estate Settlement Procedures Act (RESPA) allows homeowners to choose their own title insurance company when purchasing or refinancing residential property. It is mandatory unless a mortgage is required. Rates must be filed with the Pennsylvania Insurance Department, with most insurance companies being members of the Title Insurance Rating Bureau. Insurance rates are standardized and depend on property value, but there are two systems: using a title agent or an approved attorney.
Title Agency System
Under the title agent system, the premium is larger but inclusive, and includes the cost of the title search, title examination, escrow and settlement services and the insurance risk assumed by the title insurer. (However, there are still fees which a title agency may charge including document preparation, overnight charges, wire transfer and printing documents.)
Approved Attorney System
Under the approved attorney system, the premiums are lower, but each individual attorney charges separately for the title search, title examination, closing, document preparation, etc. While there is no restriction what an attorney can charge, competitive forces keep the overall cost to the buyer about the same as using an agent, with the advantage that he is represented.
Rating Types
Four rating types include: the sale rate, the non-sale rate and the enhanced sale and the enhanced non-sale rate. Refinancing would fall under a non-sale rate unless there is some type of title transfer taking place, in which case you should contact me.
The enhanced rate is a higher rate which covers the house as it increases in value the insurance increases proportionately. You can link to tables showing enhanced coverage through our Links page.
The enhanced rate offers additional coverage designed to provide added title protection:
It includes:
1. Automatic Policy Liability Increases – Coverage increases by 10% of the stated amount of the policy each year for the first 5 years, up to 150% of the stated amount of the policy.
2. Building Permit Violation – Protection against loss if insured is forced to remove an existing structure because it was built by a previous owner who did not obtain a proper building permit.
3. Post Policy Forgery – Protects against forgeries which may occur in the future and cloud the insured’s title.
4. Enhanced Access – Insures that there is vehicular access to the property, not just legal access.
5. Post Policy Encroachment – Protects the insured after purchase of property, if someone else builds a structure which encroaches onto insured’s land.
6. Subdivision Coverage – Provides up to $10,000 of coverage if the insured cannot close a sale, get a loan or obtain a building permit because his land was improperly subdivided prior to purchase.
Click here for more information on the enhanced policy
Other Closing Charges
Other title insurance charges are for endorsements and closing service letters. Either you or your lender may request endorsements to the title policy. For instance, a common endorsement that a lender might request would be survey coverage when no survey is done (this would only be applicable to the loan policy as there is a separate endorsement if the owner wants this coverage). A lender typically requires at least three endorsements that cost $100.00 each, or $300.00 total. The lender also requires a Closing Service Letter which is $125.00.
Caveats
The proliferation of affiliated business arrangements can sometimes be problematic. The realtor pushes his or her lender, and title insurance company. The builder might offer to pay $2000.00 in closing costs if you use their lender and their attorney. Some of these practices (depending on whether kickbacks are involved) may even be a violation of RESPA.
By choosing your own title company, you are choosing an independent third party that is not owned or operated by your real estate agent’s firm or your bank. There is a much smaller likelihood of any conflicts of interest and an independent agent holds no loyalties to the other parties in the transaction.
I have personal experience with an affiliated agent. When my family moved here, we used the company affiliated with our realtor and lender. I wasn’t familiar with the system yet, so I ended up being charged for the enhanced rate, because the agency’s policy was to bill the buyer for the enhanced insurance, unless the buyer specifically declined the coverage in writing. Further, I was charged an additional $90 for a notary and an email document fee that I deem excessive. While the enhanced policy does afford additional protection, my policy is to charge for the enhanced insurance only when requested..
Please visit our Fee and Rate page for full disclosure of fees and charges.
Title Insurance: A Differential from Homeowner's Insurance
• Title insurance protects both the homeowner and the lender against loss of home's value due to liens, encumbrances, or defects in the title.
• It differs from other types of insurance as it covers past and existing liability that was not caught at the time of closing.
• For instance, if a contractor filed a $40,000.00 lien on the house, title insurance transfers the liability to the insurer who would pay or defend against the action.
• The premium is paid once at the time of closing, unlike home insurance which pays the premium yearly.
• The coverage protects the owner for as long as they own the property.
• If refinancing, a new title insurance policy is required as it needs to be protected from the original purchase date to the refinance date.
Title Search
A title search is a crucial process performed by an attorney or title agent before a property sale to ensure it is owned free and clear, and any existing liens or mortgages are paid off at the time of closing. The search determines if the seller has a saleable interest in the property, if there are restrictions or allowances pertaining to land use, if any liens exist on the property, and if the purchaser has access to the land. If defects are discovered, the title insurance company must decide whether to attempt to cure the problem, insure over the problem, or exclude those defects from coverage. If defects arise later, title insurance coverage protects the buyer. The resulting report is called an Abstract or Abstract of Title, which is required by the bank or mortgage company before any loan can be approved. The underwriter is responsible for authorizing and issuing title insurance policies, assuming financial risk and insuring the property against insurance defects. A title agent or approved attorney must meet strict standards to remain an agent or attorney for a particular underwriter.
Regulation
Title insurance is regulated by both federal and state authorities, with the Pennsylvania Insurance Department overseeing rates. The Real Estate Settlement Procedures Act (RESPA) allows homeowners to choose their own title insurance company when purchasing or refinancing residential property. It is mandatory unless a mortgage is required. Rates must be filed with the Pennsylvania Insurance Department, with most insurance companies being members of the Title Insurance Rating Bureau. Insurance rates are standardized and depend on property value, but there are two systems: using a title agent or an approved attorney.
Title Agency System
Under the title agent system, the premium is larger but inclusive, and includes the cost of the title search, title examination, escrow and settlement services and the insurance risk assumed by the title insurer. (However, there are still fees which a title agency may charge including document preparation, overnight charges, wire transfer and printing documents.)
Approved Attorney System
Under the approved attorney system, the premiums are lower, but each individual attorney charges separately for the title search, title examination, closing, document preparation, etc. While there is no restriction what an attorney can charge, competitive forces keep the overall cost to the buyer about the same as using an agent, with the advantage that he is represented.
Rating Types
Four rating types include: the sale rate, the non-sale rate and the enhanced sale and the enhanced non-sale rate. Refinancing would fall under a non-sale rate unless there is some type of title transfer taking place, in which case you should contact me.
The enhanced rate is a higher rate which covers the house as it increases in value the insurance increases proportionately. You can link to tables showing enhanced coverage through our Links page.
The enhanced rate offers additional coverage designed to provide added title protection:
It includes:
1. Automatic Policy Liability Increases – Coverage increases by 10% of the stated amount of the policy each year for the first 5 years, up to 150% of the stated amount of the policy.
2. Building Permit Violation – Protection against loss if insured is forced to remove an existing structure because it was built by a previous owner who did not obtain a proper building permit.
3. Post Policy Forgery – Protects against forgeries which may occur in the future and cloud the insured’s title.
4. Enhanced Access – Insures that there is vehicular access to the property, not just legal access.
5. Post Policy Encroachment – Protects the insured after purchase of property, if someone else builds a structure which encroaches onto insured’s land.
6. Subdivision Coverage – Provides up to $10,000 of coverage if the insured cannot close a sale, get a loan or obtain a building permit because his land was improperly subdivided prior to purchase.
Click here for more information on the enhanced policy
Other Closing Charges
Other title insurance charges are for endorsements and closing service letters. Either you or your lender may request endorsements to the title policy. For instance, a common endorsement that a lender might request would be survey coverage when no survey is done (this would only be applicable to the loan policy as there is a separate endorsement if the owner wants this coverage). A lender typically requires at least three endorsements that cost $100.00 each, or $300.00 total. The lender also requires a Closing Service Letter which is $125.00.
Caveats
The proliferation of affiliated business arrangements can sometimes be problematic. The realtor pushes his or her lender, and title insurance company. The builder might offer to pay $2000.00 in closing costs if you use their lender and their attorney. Some of these practices (depending on whether kickbacks are involved) may even be a violation of RESPA.
By choosing your own title company, you are choosing an independent third party that is not owned or operated by your real estate agent’s firm or your bank. There is a much smaller likelihood of any conflicts of interest and an independent agent holds no loyalties to the other parties in the transaction.
I have personal experience with an affiliated agent. When my family moved here, we used the company affiliated with our realtor and lender. I wasn’t familiar with the system yet, so I ended up being charged for the enhanced rate, because the agency’s policy was to bill the buyer for the enhanced insurance, unless the buyer specifically declined the coverage in writing. Further, I was charged an additional $90 for a notary and an email document fee that I deem excessive. While the enhanced policy does afford additional protection, my policy is to charge for the enhanced insurance only when requested..
Please visit our Fee and Rate page for full disclosure of fees and charges.