TITLE 101 Introduction • A real estate investment is substantial, perhaps your client’s largest outlay of money, and therefore, the largest risk. • Title Insurance covers some of that risk. • Although Title Insurance is a large part of the real estate process, it is one of the least understood. …………..What is Title Insurance ? TITLE 101 : Title Insurance • Title insurance is “insurance” that covers defects in the title from prior to when your client purchased their property. It protects the Buyer from unforseen defects to the title of their property, things that could affect their rights of ownership. • The title “process” provides information about the property and involves the proper distributions, payoffs, and paperwork involved in the transfer of the property. …………Who are the Players? TITLE 101 : The Players Buyer • The BUYER is typically responsible to pay for Title Insurance and has the right, according to law, to engage a title company (agency) of their choice. • The BUYER is usually required by the Lender to provide coverage in the amount of the loan…”lender’s coverage”. • The BUYER can also choose to purchase “owner’s coverage” in the amount of the purchase price. TITLE 101 : The Players Buyer • RESPA makes it unlawful for a lender, Broker, attorney or Seller to require a Buyer to use a particular title Insurance provider. • The BUYER will have to choose from a variety of ENDORSEMENTS to the policy. • Some Endorsements are required by the lender, however, others may be advisable. • See http://www.patitleratingbureau.org/abouttirbop/tirbop-rate-manual for a list of approved Pennsylvania Endorsements. TITLE 101 : The Players Seller • The SELLER typically warrants “good and marketable title”, that is title that is free of any liens or adverse claims that would impair its marketability or cast doubt that ownership is vested in the owner of record. • The SELLER is responsible to pay off any liens or encumbrances. • Liens are legal claims or security interests in a piece of property, usually to secure a debt. • Encumbrances are legal interests, claims or restrictions upon property in the form of liens, encroachments, deed restrictions, licenses, easements, or mortgages….. TITLE 101 : The Players Seller • The SELLER must provide the title agency with paid tax receipts and mortgage and lien payoff information. This can be accomplished by the seller(s) themselves or through the realtor, the title agency or a settlement services company specializing in conveyancing. TITLE 101 : The Players Real Estate Broker/Agent • The Real Estate Agent typically acts as a facilitator, acquiring and distributing information to make sure that the process keeps moving towards settlement. • Who chooses the Title Company? • Realtors often charge "conveyancing fees"(to the Seller) for their assistance in obtaining information and documentation for closing. Such fees should be disclosed and agreed to by the Seller in writing. TITLE 101 : The Players Lender • Most lenders require a title insurance policy to protect the lender against claims that may not have been discovered by the title search. • The insurance provides protection for the lender's security interest (mortgage) in the property. • The title insurance required by the lender protects only the lender. How do we protect the Buyer.... TITLE 101 : The Players • Owner's coverage - To protect your client (the Buyer) against title problems (preferably with as few exclusions from coverage as possible). It usually only costs a fraction more, attributed to the usually higher value of the property versus the amount of the mortgage. TITLE 101 : The Players TITLE AGENCY, SEARCHER, and UNDERWRITER • TITLE AGENCIES are agents of the title underwriters for the purpose of issuing title insurance policies. • In general, they also accept applications for title insurance, process the request, prepare title commitments, conduct the closings and issue the title insurance policy on behalf of the title underwriter. TITLE 101 : The Players • UNDERWRITER: The Title Insurance Underwriter is the entity that provides the title insurance according to the title policy. Pursuant to the policy, they owe two duties to their insureds: a duty to defend, and a duty to indemnify. Their obligations to their insureds are governed by the terms of the title policy. Title claims are submitted to the underwriter for determination. In addition, title underwriters provide assistance to their issuing agents in issuing title insurance policies. Underwriting attorneys are available for consultation, and for certain issues, may even have to approve the agent’s ability to issue a policy of insurance. • A title agency can have multiple underwriters. TITLE 101 : The Players Searcher • A title searcher is engaged to review the records and to report that information back to the title agent. • The title search may be performed by a lawyer, an escrow or title company, or as is usually the case these days, an individual specializing in searches. • Title searches can be very time and labor intensive, or, if real estate records are computerized, it can be completed fairly quickly. • Liens, records of deaths, divorces, court judgments, and contests over wills must all be examined, possibly requiring a search of government offices such as surveyors, county courts, tax assessors, and recorders of deeds. TITLE 101 : The Process • The title underwriter issues a binder, indicating their intention to insure the title on a given property and specifying the amount of insurance, covered parties, policy terms, limitations and conditions. TITLE 101 : The Process • The parties then work to clear any clouds (i.e., encroachments) to the title. For example, if there is an unpaid judgment on the property, the parties make an effort to get the judgment paid and clear the title at or before closing. TITLE 101 : The Process • The title agency, through their closing officer, usually (but not always) hosts the closing and proceeds to pay off liens and judgments, prorate tax payments and make distribution based upon the HUD-1 Settlement Sheet that they prepared. The new mortgage and deed are executed and recorded at the courthouse in the county in which the home is located. TITLE 101 : The Process • Usually, especially if requested (RECOMMENDED) , the title officer marks up the title report to show that liens were satisfied, endorsements applied and objections are removed. • Generally, the premium is paid by the buyer / borrower at the closing table. TITLE 101 : The Process • After the closing the insurance company issues the actual title policy. The buyer's policy is generally sent to the Buyer. The lender's policy is typically sent directly to the lender.