Q&A About Title Insurance
Q: What exactly does a Title Company do?
We prepare the documents that make the transaction happen, disburse all payments, record the deed and mortgage, all while making sure we keep you informed and communicated with throughout. In the end, we also make a big deal about actually celebrating the closing day for our clients. Below is a more detailed description:
- Hold the earnest money deposit in an escrow account (if applicable)
- Run a title search and perform an examination of the title
- Work to clear any potential title issues
- Order any necessary payoffs, estoppel letters, municipal lien searches, surveys, etc.
- Prepare all necessary documents to clear and transfer title
- Coordinate the day and time of the closing with all parties involved in the transaction
- Facilitate the signing and notary of all required documents
- Record the necessary documents after signing
- Issue any title insurance policies
Q: What is title insurance?
Title insurance insures against financial loss caused by defects in title to real estate. Title insurance companies defend against lawsuits attacking the title, or in the case of a covered loss, reimburse the insured up to the policy limit.
Q: Do I need title insurance in order to get a mortgage loan?
Most lenders will require you to have basic title insurance coverage to protect their interest in the home. This is referred to as the lender’s title policy. You can purchase additional coverage to protect yourself. This is referred to as the owner’s title insurance policy. As a general rule, the lender’s policy is required while the owner’s policy is usually optional.
Q: Who pays the cost of title insurance?
It varies from state to state, and sometimes among different counties within the same state. Sometimes it’s the buyer, and other times the seller. Sometimes the cost is split: The seller will pay for the lender’s title policy, while the buyer covers the cost of the owner’s policy. These items are negotiable, and are therefore affected by the type of real estate market you’re in.
Q: Why do I need title insurance?
When you buy a home, or any property for that matter, you expect to enjoy certain benefits from ownership. For example, you expect to be able to occupy and use the property as you wish, to be free from debts or obligations not created or agreed to by you, and to be able to freely sell or pledge your property as security for a loan. Title insurance is designed to cover these rights you bargain for.
Q: How does title insurance work?
These policies can do several things. The title search itself can find out who is authorized to sell the property, and what kind of title exceptions are in place (if any). This is done by searching the legal records for the property in question. The owner’s title insurance policy goes a step further than this. It gives the buyer protection against property ownership disputes. The owner’s policy normally states that the insurance provider will defend against ownership claims that are outlined within the policy. Further, the title insurance company will reimburse the homeowner for losses resulting from such disputes (up to the amount stated in the policy).
Title insurance works differently from regular home insurance it offers coverage for damage that occurs after the policy’s effective date. Title insurance, on the other hand, covers things that occurred before the policy’s effective date (but were discovered later). Payment frequency is another difference. You only pay for title insurance once, and then you’re covered as long as you own the home — unless you refinance. This is obviously different from the annual premiums that come with a regular home insurance policy.
Q: What if I have a problem? Do I have to lose my property to make a claim?
Not at all. At the mere hint of a claim adverse to your title, you should contact your title insurer or the agent who issued your policy. Title insurance includes coverage for legal expenses which may be necessary to investigate, litigate, or settle an adverse claim.
Q: How long does it last?
A loan policy lasts until the loan is paid off. An owner’s policy lasts as long as you or your heirs own the land. It also may provide warrantor’s coverage after you no longer own the property, depending on your policy provisions. Policy language has changed over time, so read the continuation of coverage provisions in your policy carefully to determine coverage terms.
Q: What does this cost?
The cost varies, depending mainly on the value of your property. The important thing to remember is that you only pay once, then the coverage continues in effect for so long as you have an interest in covered property. If you should die, the coverage automatically continues for the benefit of your heirs. If you sell your property, giving warranties of title to your buyer, your coverage continues. Likewise, if a buyer gives you a mortgage to finance a purchase of covered property from you, your coverage continues to protect your security interest in the property.
Q: What if my home increases in value? Am I still covered?
You are covered for the value of your policy. If you add improvements to your home, or if your home increases in value over time, you can buy an increased value endorsement to cover the increase in your property’s value.
Q: If my lender gets title insurance for its mortgage, why do I need a separate policy for myself?
The lender’s policy covers only the amount of its loan, which is usually not the full property value. In the event of an adverse claim, the lender would ordinarily not be concerned unless its loan became non-performing and the claim threatened the lender’s ability to foreclose and recover its principal and interest. And, in the event of a claim there is no provision for payment of legal expenses for an uninsured party. When a loan policy is being issued, the small additional expense of an owner’s policy is a bargain.
Q: Is it like homeowner’s insurance?
No, title insurance is different from other types of insurance. It does not insure against fire, flood, theft, or any other type of property damage or loss. It protects against losses from ownership problems that arose before you bought the property, but were not known at the time you bought the property. It does not guarantee that you will be able to sell your property, or borrow money on it.
Q: Do I get to pick my own title company?
You may choose any title company you want; you don’t have to use a company selected by a real estate agent, builder, or lender.
Section 9 of the Real Estate Settlement Procedures Act (RESPA) prohibits sellers from conditioning the home sale on the use of a specific title insurance company. You may contact the Consumer Financial Protection Bureau, who regulates RESPA, if you have a complaint.
Q: What Is Escrow?
Very simply defined, an escrow is a deposit of funds, a deed or other instrument by one party for the delivery to another party upon completion of a particular condition or event. Whether you are the buyer, seller, lender, or borrower, you want the assurance that no funds or property will change hands until ALL of the instructions in the transaction have been followed. The escrow holder has the obligation to safeguard the funds and/or documents while they are in the possession of the escrow holder, and to disburse funds and/or convey title only when all provisions of the escrow have been complied with.
Q: Why Do You only Accept Wired Funds?
There has been an overwhelming number of fraudulent cashier’s checks in circulation, forcing title companies to have “collected” funds (meaning they are available for immediate withdrawal) prior to closing. The new FAR BAR contract requires collected funds at closing (as stipulated in the Florida Administrative Code 690-18608). A wire transfer will allow funds to be immediately available at closing; unfortunately, a cashier’s check could delay the transaction until the check is cleared.
Q: I’m buying a new construction home from a builder; can I choose the title company?
It depends on the builder and your contract. Most things are negotiable. You need to make sure your incentives are not tied to choosing the builder’s title company. The builder usually owns their title company, or a percentage of it, and it has the best interest of the builder in mind. It’s usually best to find a title company that will represent your best interest, and most times we can match or even come in lower on overall fees.
Q: What is a 1031 exchange?
A 1031 exchange refers to legislation that allows an investor to sell a property, reinvest the proceeds in a new property and as such defer all capital gain taxes. Asset Preservation Incorporated (API) is recognized as one of the leading Qualified Intermediaries in the nation, meaning that they have a proven track record guiding investors through the exchange process.
Q: What is a time-share?
A time-share is a form of joint ownership of property where many owners share title and enjoy the use or occupation of the property according to a fixed time period or schedule.
Q: Can you be a little more specific about the types of claims, or risks, covered by title insurance?
Sure. First understand there are basically three different levels of coverage: Standard coverage, extended coverage, and our most comprehensive “EAGLE Policy” coverage.
Standard coverage handles such risks as:
- Forgery and impersonation;
- Lack of competency, capacity or legal authority of a party;
- Deed not joined in by a necessary party (co-owner, heir, spouse, corporate officer, or business partner);
- Undisclosed (but recorded) prior mortgage or lien;
- Undisclosed (but recorded) easement or use restriction;
- Erroneous or inadequate legal descriptions;
- Lack of a right of access; and
- Deed not properly recorded.
An extended coverage policy may be requested to protect against such additional defects as:
- Off-record matters, such as claims for adverse possession or prescriptive easement;
- Deed to land with buildings encroaching on land of another;
- Incorrect survey;
- Silent (off-record) liens (such as mechanics’ or estate tax liens); and
- Pre-existing violations of subdivision laws, zoning ordinances, or CC&R’s.
- Subject to availability in your locale, First American’s EAGLE Policy covers all of the risks listed above, plus:
- Post-policy forgery;
- Forced removal of improvements due to lack of building permit (subject to deductible);
- Post-policy construction of improvements by a neighbor onto insured land; and
- Location and dimensions of insured land (survey not required).
For a more detailed list of covered risks, visit “70-Something Ways to Lose Your Property” elsewhere on this website.
As with any insurance contract, the insuring provisions express the coverage afforded by the title insurance policy and there are exceptions, exclusions, and conditions to coverage that limit or narrow the coverage afforded by the policy. Also, some coverage may not be available in a particular area or transaction due to legal, regulatory, or underwriting considerations. Please contact a First American representative for further information.
Q: What is a "cloud" on the title?
This is an actual or apparent outstanding claim on the title. Examples of clouds are and old mortgage or deed of trust with no recording showing that the secured debt was paid off.
A failure to properly transmit all interests in the property to the previous owner is also a cloud on the title. For example, mineral rights. If a deed was improperly written or signed, or there was an unresolved legal debt or a levy by a creditor or taxing authority “clouds” the title.
The cloud can be quietly removed by finding a person to create or execute a document proving that the debt has been paid or corrected.
Q: What Is TRID?
TRID is an acronym for TILA-RESPA Integrated Mortgage Disclosures and it encompasses changes to the loan and settlement disclosure forms. These changes went into effect on October 3, 2015, and are the result of new regulations issued by the Consumer Financial Protection Bureau, the consumer protection agency created by the Dodd-Frank Act of 2010. Dodd-Frank mandated the combination of the Truth in Lending Act (TILA) loan disclosures with the Real Estate Settlement Procedures Act (RESPA) Good Faith Estimate and HUD-1 Settlement Statement disclosures.
Q: Why do I need a Survey and is it recommended I get one?
Most lenders require a Survey to make sure the property doesn’t have any problems. We actually recommend Cash buyers also get a Survey, while rare every year we see problems arising after the transaction closed regarding easement encroachments and boundary line disputes. The bottom line is spending the $350+(All based on the size of property) on a survey could save your thousands down the road when you have to sue someone because their fence is on your yard.
Q: What are Closing Costs?
Closing costs are all the fees required to close the real estate transaction. They can include:
- Loan points
- Loan origination fees
- Private mortgage insurance (PMI)
- Title insurance
- Attorney fees
- Closing fees
- Recording fees
- Surveying fees
- Property taxes
- The balance of your down payment
- And more
Prior to closing, review your final Settlement Statement to ensure all the calculations are correct, including credits for past deposits and any other agreed upon buyer and seller credits. Also recheck all lender, title, and escrow fees to make sure they’re accurate.
Q: What is a Closing Disclosure?
If you are getting a mortgage, then a Closing Disclosure is a five (5) page form that provides final details about the terms of your mortgage loan. The lender is required to give you the Closing Disclosure at least three (3) business days before you close. This three (3) day window allows you time to compare your final terms and costs to those estimated in the Loan Estimate which you originally received from your lender.
Q: What is a Title Commitment and how do I read it?
After a title search (see above) is done looking for defects in the property’s chain of history that might lead to future problems, a “Title Commitment” is issued informing that the title company has committed to insuring the property. The buyer has several days to talk to their title company or their agent if they have questions or they find anything unacceptable on the title commitment. The Title Commitment is divided into two (2) sections:
Schedule A is like the cover page. It lists the: (1) Effective date of the insurance policy; (2a) Dollar Amount of the Policy; (2b) Names of the insureds (e.g. New Owner and/or Lender); (3) Name of the Seller of the Property; and (4) identification of the land being insured.
Schedule B-1 includes the Requirements. The Requirements are what must be done before the title insurance can be issued and property can close. If any of the requirements can’t be met, there may be a delay or cancellation of the sale. Some of the Requirements may be recording of a new deed, releases of various liens, tax payments, copy of trust paperwork, or proof of identity, payoff of mortgages, liens, judgments, Home Equity Lines (HELOC).
Schedule B-2 includes the Exceptions. Exceptions are what the title company will not cover against (including certain exceptions that are standard, like water or mineral rights.) If the problem is listed in Schedule B, the title insurance policy will not cover against it (nor pay attorney or court fees regarding the problem.) If the buyer protests some Exception, the title company may be convinced to insure over it (with an endorsement) or obtain a release, or other document to eliminate the exception. Some examples of Exceptions are interests in the land that can only be found at inspection, easements, and tax assessments for new construction.
The buyer, however, should read the Exceptions section carefully as there may be a limited time to make any objections before the title insurance is issued and the closing is completed.
After the Closing, the title insurance policy is issued.
Q: How should the title as Owner appear on the Deed?
There are options and your choice can have far-reaching consequences. It may even control where you want your property to go after you die. Here are the basic types:
Sole ownership title is held solely in one person’s name, thus no one else is shown as sharing an ownership interest except for the named titleholder.
Tenants by the Entireties: For spouses who are currently married, the property can be titled in both of their names and held as a tenants by the entireties. This is one of Florida’s best forms of asset protection from outside creditors because the property is not divisible by creditors to satisfy the obligation of only one debtor spouse.
Joint Tenancy With Rights Of Survivorship(JTWROS) means you hold title with someone else equally (i.e. 50%/50% for two people, 1/3, 1/3, 1/3 for three people etc…) and when one of you dies the entire interest passes to the remaining surviving joint tenant(s) rather than to the heirs of the one who died. Note, however, that if a co-owner conveys their interest to a 3rd party, the property loses its survivorship status as to that portion and defaults to being held as tenancy in common.
Tenancy In Common Several parties can own the property in whatever different percentages they want. Any party can sell their interest to anyone without notice to the other. And upon the death of one of the people on the title, their interest goes to their own estate to be distributed according to their will or to their heirs through probate.
Q: How do I hire you?
The first step is to send us the fully signed contract. Call us to get the correct email to send in a new contract. Once we have the contract, we are going to need to get the escrow deposit from the buyer. There are 2 options for sending the earnest money deposit: WIRE the funds from a bank account, or a MAIL us the check. Know that because of increased WIRE FRAUD you should always call our office to confirm the wiring instructions.
Q: If Title Insurance is set by the state, what fees are different at each title company?
Most closing cost fees are items title companies don’t control and would be basically the same wherever you go. Doc Stamps, Title Insurance Premium, Search fees, and HOA Estoppel Fees are all items set by either the State or another third party that NO title company can control and are simply a pass-through to the consumer.
The Settlement fee is something that varies by Title company. The good title companies include everything in this and DON’T add junk fees.
When picking a title company, you’re basically focusing on Service and things like on a refinance, credits if you’ve purchased your home in the last 3 years. If you bought your home in the last three years you are eligible to get a discount on the Title policy. Not all Title Companies ask or even try to get these savings for their consumer.
Q: Who Pays:
(for residential contracts)
|SELLER EXPENSES||BUYER EXPENSES||BUYER Costs
(for residential contracts)
|Real Estate Commission||Seller||Buyer||Survey (if required by Lender)|
|Seller’s unpaid Mortgage (if any)||Seller||Buyer||Elevation Certificate (if required by Lender)|
|Seller’s unpaid Judgment Liens (if any)||Seller||Buyer||Appraisal Fees (if required by Lender)|
|Seller’s unpaid Municipal Liens (if any)||Seller||Buyer||Loan Fees (if required by Lender)|
|Seller’s HOA/Condo Ass’n Liens (if any)||Seller||Buyer||HOA/Condo Application fees to the Ass’n (if any)|
|Seller’s unpaid HOA/Condo dues (if any)||Seller||Buyer||HOA/Condo Transfer Fees to the Ass’n (if any)|
|Seller’s unpaid property taxes (if any)||Seller||Buyer||Buyer’s Property Inspections (if any)|
|Seller’s unpaid utilities (if any)||Seller||Buyer**||Recording Fees on Deed, UCC-1, Note, Mortgage|
|HOA/Condo Estoppel Fee to the Ass’n (if any)||Seller||Buyer***||Intangible Tax on Buyer’s new Mortgage|
|Documentary stamp tax + Surtax on the Deed (this is not a recording fee)*||Seller*||Buyer****||Documentary stamp tax on Buyer’s new Mortgage (this is not a recording fee)|
|Title search (if SELLER’S Box is Checked or the Miami-Dade/Broward Regional Provision is Checked per Article 9)||Seller||Buyer*****||Documentary stamp tax on Buyer’s new Promissory note (this is not a recording fee)|
|Municipal Lien search (if SELLER’S Box is Checked or the Miami-Dade/Broward Regional Provision is Checked per Article 9)||Seller||Buyer||Title search (if BUYER’S Box is Checked per Article 9)|
|Owner’s Title Policy (if SELLER’s Box is Checked per Article 9)||Seller||Buyer||Municipal Lien search (if BUYER’S Box is Checked per Article 9)|
|Seller concessions e.g. paying for all or a portion of the title insurance, costs of appraisal, property repairs, home warranty, decorating allowance, moving allowance.||Seller||Buyer||Owner’s Title Policy (if BUYER’S Box is Checked or if the Miami-Dade/Broward Regional Provision is Checked per Article 9)|
|Seller’s Settlement Fee||Seller||Buyer||Lender’s Title Policy|
|Buyer||Buyer’s Settlement Fee|
* Documentary stamp tax on Deeds (Seller Expense) (this is not a recording fee). In all Florida counties except Miami-Dade, the tax rate imposed on Deeds (e.g., warranty, special warranty, quit claim, trustee’s deed, life estate deed, and even transfers of property between spouses) are subject to tax is $0.70 on each $100.00 or portion thereof of the total consideration. But in Miami-Dade County the tax rate is $0.60 cents on each $100 or portion thereof. Miami-Dade County also has a surtax of $0.45 cents on each $100 or portion thereof however single-family dwellings are exempt from the surtax. For example, a Broward County property that sells for $180,000 would = $1,260.00 in documentary stamp taxes (1800 is the number of taxable units representing each $100 or portion thereof of the consideration of $180,000 multiplied by (x) $0.70 = $1,260.00). See, Fla. Stat. §201.02(1)(a), §201.031
** Recording Fee (Buyer Expense) $10.00 for the First (1st) Page plus $8.50 for each additional page. See, Fla. Stat. §28.24(12)(a,b,d,e), §24.222(3)(a).
*** Intangible tax (Buyer Expense) of $0.002 per one dollar $1.00 of notes secured by a mortgage. For example on $180,000.00 the intangible tax = $360.00. See, Fla. Stat. §199.133.
**** Documentary stamp tax on Mortgages (Buyer Expense), are taxed based on the full amount of the indebtedness regardless of whether it is contingent or absolute, at the rate of tax is $0.35 cents per $100 or portion thereof. There is no cap on the amount of tax due. See, Fla. Stat. §201.08(1)(b)
***** Documentary stamp tax on Promissory notes (Buyer Expense) are taxed at the rate of $0.35 cents per $100 or portion thereof; which is capped at $2,450. See, Fla. Stat. §201.08(1)(a)