What is Title Insurance?

Title Defect

Title insurance is a type of insurance that protects mortgage lenders and homeowners against claims questioning the legal ownership of a home or property. If disputes over title ownership arise after the purchase, the insurance policy pays for any legal fees to resolve them.

Unlike other types of insurance that help cover future mishaps, title insurance is designed to protect the policyholder from any past title discrepancies. For instance, when you buy car insurance, you are protected in case your car is in an accident. When you buy health insurance, you are protected against the cost of future medical care. Title insurance, on the other hand, protects an investment in real estate that might be at risk due to a past event, such as an undiscovered lien against the property.

Title insurance does not just protect you, as a purchaser of the property. Your mortgage lender will likely require you to have title insurance in order to protect their security interest in the property you are buying.

In any real estate transaction requiring a mortgage, the title company runs a public record search to ensure that the home being purchased is free and clear of any liens or ownership disputes. This process confirms the seller’s legal right to sell the home. If any defects in title, also known as “clouds”, are found during the title search, they are the responsibility of the seller. He or she may be able to cure the defects, or you can walk away during the sale. If defects in title are missed, however, you could be on the hook.

For example, a lien travels with the property, not the debtor. For example, let’s say a previous owner of your house had the kitchen remodeled. He failed to pay the contractor the $30,000 owed, and the contractor had a lien against the house for that amount.

If the title search failed to discover the lien, and you purchased the property, the lien would become your problem. Now that it is known, you will have to satisfy it, most likely out of the proceeds of the house if and when you sell it.

While this process usually goes smoothly, title insurance comes into play when disputes arise. Here are some of the more common title issues:

  • Title forgeries
  • Back taxes
  • Filing errors
  • Unknown heirs to the estate who claim ownership
  • Inconsistent or conflicting wills
  • Liens, commonly from unpaid home equity lines of credit (HELOCs) or contractor bills
  • Undocumented easements

There are two types of title policy; a Lender’s policy and an Owner’s policy.

A lender’s title policy is designed to protect the financial institution providing your mortgage from title claims that would put their stake in your home at risk. Lenders almost always require borrowers to purchase title insurance on the lender’s behalf as part of the loan-approval process. It’s considered a closing cost.

The owner’s title policy is designed to protect the homeowner in case of any claims against their ownership of the home. In most cases, owner’s title insurance is not required in a home purchase, but it is recommended. It can be paid for by the seller at closing, so you may want to negotiate for it when you are purchasing a home. Generally, in Michigan, the seller’s real estate agent will choose the Title Company that will provide the buyer’s owner’s policy and that Title Company will conduct the closing. The buyer may use the same Title Company for the Lenders policy, or the buyer can use a different Title Company.

If you are buying a home in cash or your lender doesn’t require title insurance, you can request that the seller provide a warranty of title, which states that they are the sole party with a right to sell the home.

How much does title insurance cost?

Title insurance policy costs often range between $500 and $3,500 for each policy but vary based on the purchase price, mortgage amount, the sales price of the home, and the extent of the coverage.

Your title insurance premium is a one-time charge that’s paid at closing. In addition to the insurance itself, you may be responsible for other related fees, like wire transfer fees, closing fees, and recording with the county (register of deeds).

You should watch out for unnecessary fees from title companies.  Anything outside of the title premium, title closing, recording, and wire transfer are unnecessary fees that you should NOT be paying.

In many states, you can compare the prices of different title insurance companies. But in Michigan all title companies are required to provide the same level of coverage at the same price, so shopping around isn’t required in terms of title premiums.

I hope you found this information informative and helpful. If you have any real estate related questions, I am always happy to talk with you, and I’m available via phone, text, email and social media.

To your health and happiness, Dani

How to Lower Closing Costs when Buying a Home

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Closing costs help facilitate the sale of a home and both buyers and sellers pitch in. Some closing costs can be paid before the home is officially sold and others are paid at the end of the transaction. However, closing costs aren’t set into stone and they can be negotiable. You can ask your real estate agent or lender with help in estimating your actual closing costs.  Look over everything to make sure all the numbers are right and then you plan accordingly in how you are going to lower the costs.

Here are a few tips to get you started:

Loyalty Programs – Some banks offer assistance to buyers when they use them to help pay for the purchase. It is a way for a bank to reward loyal customers.

Closing at the End of the Month – Schedule your closing at the end of the month so you don’t have to pay the per diem interest for so many days.

Get Multiple Quotes – Get estimates from different lenders because you are looking for the best package of closing costs and interest rates. There might be something better out there.

Junk Fees – There may be some fees a lender charges that may be negotiable, such as origination fee, processing fee, or application fee. Make sure to ask if what you are being quoted is the best they can offer.

Title Costs – Sometimes title insurance and settlement are bundled together. You may be able to find a title and settlement company that is less expensive.

Negotiate with the Seller – You can try to negotiate with the seller in paying for some of your closing costs. Buyers can ask for credit or to cover lender expenses during the offer and negotiation process.

Ready to buy and/or sell a home? Call, text or email me! If you are active on social media, please look me up on Facebook, LinkedIn, Twitter and Instagram using the icons on the bottom right of this page.
Dani

What is Real Estate Title Insurance

 

5 Sticky Situations You Can Avoid If You Have A Real Estate Title Insurance

When you buy a home in the Ann Arbor area, you don’t only buy the land, the house, and any other physical structures that come with it. The most important thing is that you are also buying the legal rights of ownership to the property, which is referred to as “title.”

This title is indicated in the “deed” — an official record of your rights and ownership of the property that states that it has been legally transferred to you by the previous owner. When you sell your home in the future, you will also transfer this rights to your buyer.

Before officially taking this title and completing the closing of the real estate transaction in the state of Michigan, a title search will be done by a Title Company to find any defects in the title. Chances are, there could be one or more issues that could emerge in the title. These title defects could cause you to lose your property, or make it impossible to you to sell when the time comes.

This type of insurance offers protection against any defects with the title or legal ownership status of a property. It covers financial loss from these problems or from any existing property liens. Title insurance may come in a bit hefty amount, but it is a one-time expense and does not carry with it additional monthly premiums. It will also cover the homeowner until the property is sold.

Is it worth it?

Because every property has a history, any defects in the title could hinder you from enjoying your ownership rights. But having a title insurance serves as your protection against possible title problems that may surface and could cause property loss or damage. Remember, any competing claim of ownership could seriously jeopardize your financial stake on your biggest investment. Because unfortunately, these problems may be discovered even after an initial title search was done on your property.

Title insurance is vital especially in purchasing rural property, since aside from any title claim, it will also advise you if the property has previously been used for non-residential purposes.

There are generally two types of title insurance coverage: a lender’s title insurance and the owner’s policy. Most lenders require a buyer to purchase a lender’s policy as part of investor requirements. But this policy will not protect you but covers only the lender, hence its name.

It is the owner’s insurance policy that will protect your property — your biggest financial investment — against anyone who has a claim against your home.

So you think you really own your property? Here are the most common title problems that could arise and dispute your rights to ownership:

title

1. There’s more than one home seller (or homeowner)
At the time of your purchase, you may not know that there’s another seller or homeowner, maybe a relative or an ex-spouse. This third party may surface with a claim that they actually own all or a part of your property. They would insist that the seller had no right to sell the home to you in the first place.

In this situation, a judge could confirm and favor this third party’s claim to the house, which could leave you with a huge financial loss (and no home to live in). Fortunately, your own insurance policy could cover this loss. Your title insurance will pay for expenses such as attorney’s fees and court costs, while the lender’s insurance policy will pay for court costs incurred by the bank. The sale, on the other hand, will be deemed null and void.

2. Property liens for delinquent taxes, unpaid contractors, and other debts
There are circumstances where, unfortunately, the former homeowners were not diligent bill payers. This is worrisome because even if the debt is not your own, banks or other financing companies can place liens on your property to cover for those unpaid debts.

These property liens can slow down the closing because your title won’t be considered clear until you pay the existing debt. Sometimes, even though a tax search hadn’t tracked down any unpaid taxes on the property, it’s still possible that you would get notified for any of these delinquent taxes after closing. It’s also a common issue if the property was foreclosed on or the home was bought in an online foreclosure auction website.

Fortunately, if you have an owner’s title insurance policy, it will cover for it and will give you documentation that the indicated debts are paid.

3. Survey or boundary disputes
Conflicts concerning the boundaries of your property may arise if, despite several surveys before closing, there are other existing surveys that show different property lines. This may lead to dispute especially when a neighbor or someone will claim ownership to a part of your property.

Likewise, if your neighbor happened to put up a fence or a driveway on a portion of your new property right before closing, you can count on your title insurance to settle the dispute. The policy will pay for the cost of any legal efforts to settle the issue out of court and have any of your neighbor’s item removed from it.

4. Clerical or filling errors in public records
When it comes to homeownership rights, a simple typo can lead to devastating title claim problems. These clerical errors in public records and/or courthouse documents could affect the deed or survey of your property. And while it isn’t impossible to resolve them, it can take an emotional and financial strain to any homeowner. Your title insurance serves as a cushion for this kind of problem.

5. Undisclosed or missing heirs to the property
Imagine this scenario: the former property owner died. So, the ownership of the home may fall to his heirs or to anyone indicated in his/her will. However, those heirs were missing or unknown at the time of his death, so the state sold the property, together with all of the assets.

When you purchase this kind of home, despite assuming the rights as the new owner, family members of the previous owner could come forward and claim ownership of the property. This claim could seriously jeopardize your rights to the home, even if it happens years after you bought the property.

Bottom Line
With these situations, the last thing any homebuyer or homeowner would want are hurdles that will cripple their ability to purchase the home and claim full ownership to it.

Even if there’s a slim chance that past owners or unpaid property tax bills might emerge, the risk is still huge considering what is at stake — your beloved home. If you are still contemplating on whether you will allot money for it, just think how you will be affected if you’re suddenly faced with any of those title-related nightmares. Remember that you are entitled to choose the title company where you will get yours, so gather recommendations from your trusted real estate agent, lender, or family.

Source: NextHome Victors, Ann Arbor, Michigan