Title Insurance – What is it and Why You Need It

Title Insurance, what is it good for?

Title Insurance is an important part of the home buying and selling process.

What is Title Insurance and How is it Different from Other Kinds of Insurance?

Most of us are familiar with other types of insurance, such as homeowner’s insurance, car insurance, health or life insurance. These types of insurance protect against harm from future events. Title Insurance, on the other hand, provides the opposite, protection against harm from past events. Title insurance is insurance that the person selling you the property owns it. It is insurance that no one else, for example, a former spouse, has a claim to the land, a lien or judgment against the seller that would give them any rights to it, or that there is a mortgage on the property. To protect themselves, Title Insurance Companies perform a title search, which will review the deed that the seller received, and any mortgage or other document recorded against the property.

Title claims, therefore, arise much less frequently and are usually the result of human error, imperfect knowledge, or unforeseen events that cause a loss.

Do I need to obtain Title Insurance?

No, it is not mandatory. However, it is highly recommended. In situations where the buyer is obtaining a mortgage to purchase the real estate, the lender will almost definitely require the buyer to obtain Title Insurance. This is because the lender is loaning money to the buyer to purchase a specific piece of property and should the buyer not be able to pay, the lender will foreclose to take the property for itself. Thus, the lender has an interest in ensuring that the property that is being purchased will be free and clear of any other mortgage, judgment or lien that may supersede this new mortgage. The lender will also want to ensure that the property being sold is currently owned by the individual who is claiming to be the owner. However, the lender’s policy does not protect you.

If there is an issue with the property line, or an unrecorded deed, the lender’s policy will not protect you. That is why you should get your own policy. In most of Florida, it will not cost you much – while each contract is different, traditionally, the seller pays for the owner’s title policy. This is not true, however, in all situations, and it is not true in other states.

Are there two policies then when a lender is involved?

Yes. Title companies will routinely issue two types of policies: a lender’s policy that covers the mortgage holder for as long as the mortgage exists, and an owner’s policy that covers you for as long as you own the property.

How often will I have to pay a title premium?

Unlike other types of insurance, which may require a yearly or monthly premium, the Title Insurance premium is paid just ONE TIME, when you purchase the property. In fact, it is often the case that you will pay only for the lender’s policy, and that is generally highly discounted in Florida.

Does the title company do anything else? I have heard that there is a Closing that occurs.

The title company is involved in the real estate transaction from the moment a purchase contract is signed. The title company will order the survey for the buyer, collect the escrow deposit, collect the final payment, and distribute the funds. The title company also hosts the Closing. There are three different types of closings.

In a sit-down closing, the title company, the parties, along with their real estate agents and attorneys sit down in a conference room where documents are signed, funds are exchanged, and title policies are issued.

Mail-away closings are closings where the documents are mailed to each party, signed and notarized in different locations, and mailed back to the title company. Once the title company has received all necessary funds and signed documents, funds are transferred, and policies are issued.

Some states, including Florida, allow for online closings. In an online closing, the parties will sign the documents with the assistance of a Remote Online Notary. While these closings are allowed under Florida law, they can be more costly, as there are Remote Online Notary fees, and not all mortgage lenders will accept documents signed in this manner. Title insurance may seem confusing, and in a future post, we will explain the parts of the policy. You should work with a title company that will explain the policy to you, especially the exceptions that are not covered by the title insurance policy. And while your owner’s policy may be labeled as “optional,” when you are investing several hundred thousand dollars on a new piece of property, you should not skimp on the insurance that ensures that you are buying what you paid for.