Watersound Closings & Escrow
What Is Title Insurance and Why Is It Important?
Title Insurance is an indemnity insurance that insures the buyer or lender of real property from losses due to liens, encumbrances or other title defects in the chain of title that, for the most part, occurred prior to acquisition of the property. It also covers losses and damages suffered if the title is unmarketable (i.e., unsellable) or if there is no right of access. The amount of coverage of is typically the sales price of the property for an owner’s insurance policy, and the amount of the loan for a lender’s insurance policy. An Owner’s Policy of Title Insurance protects an owner/buyer from unforeseen future title discrepancies. If a claim arises, the insurance company will defend the title and pay the cost of settling any valid claims made on the property or reimbursing the owner for the actual monetary loss caused by the title defect up to the face value of the policy. In short, title insurance pays for the expertise to resolve title defects, that is, to defend a buyer’s title and pay losses for defects of title.
What Is a Title Search?
Prior to the closing of the transaction and prior issuance of the title policy, the title company will search the public record to determine whether the property is free and clear of liens, encumbrances and any clouds on the title. The title search will track and verify the chain of title and detect known claims against, or defects in, the title to the subject property. If there are known defects, the title company will require that the defects be cured prior to the closing. Even the most diligent search of the public records, however, could fail to disclose a title defect, as not all title defects are easy to identify. There could be issues arising from filing errors by the clerk, forgeries, undisclosed heirs, and other unforeseen problems. A title search and/or a title examination are not the same as title insurance.
Do I need Title Insurance?
Yes! A home is typically your largest investment. Title insurance will protect an owner of property if there is a problem with the title after the closing date. The underwriter or insurance company will defend against a lawsuit attacking the title of the property or reimburse the owner for the actual monetary loss caused by the defect, up to the dollar amount of insurance provided by the policy. There are numerous title discrepancies that even the most diligent search could fail to disclose, such as:
- Errors in Public Records
- A forged will or deed
- Unknown liens and encumbrances, e.g. missing interests, easements, or other rights
- A married person conveying real estate without his /her spouse
- Fraudulent impersonation of previous owner
- Improper execution of closing documents
- Improper recordings (misfilings)
- Undisclosed or missing heirs
- Invalid divorces
- False affidavits
- Boundary or survey disputes
The above items are just a few of the potential problems that could unexpectedly arise. Even if a title defect doesn’t cause an owner to lose the property altogether, it could make it impossible or extremely difficult sell the property. If an owner were forced to defend his/her property rights in court, the cost would be much, much greater than the cost of the one-time premium for an Owner’s Policy of Title Insurance.
Why Are There Separate Title Policies for Owners and Lenders?
There are two types of title insurance: (i) an owner’s policy of title insurance, which directly insures the new owner, is usually issued in the amount of the purchase price, lasts for as long as the buyer or his/her heirs have an interest in the property, and protects the owner against defects that could affect his/her ownership rights; and (ii) the lender’s policy of title insurance, which only protects the lender, only lasts for the life of the loan, and is usually based on the dollar amount of the loan. Most lenders require a Loan Policy when they issue you a loan to protect against title defects that could affect the lien of the lender’s mortgage. The Loan Policy, however, does not protect the Owner; rather, a buyer must purchase an Owner’s Policy of Title Insured to the reap the benefits of title insurance.
How Much Does Title Insurance Cost and How Long Does It Last?
Florida title insurance rates are set by Florida statute based on the purchase price of the property. The average cost of a loan policy is $3.50 per $1,000.00 of loan. The average cost of an owner’s policy is $2.50 per $1,000.00 of purchase price. An Owner’s title insurance premium cost is about half percent (0.5%) of the purchase price of the property and less than ten percent (10%) of the closing costs. The insured will pay a one-time premium at closing; there are no annual premiums or other amounts owed. A Loan Policy is effective for the life of the loan. An Owner’s Policy, however, is effective as long as the owner or his/her heirs retain an interest in the property or remain liable for any warranties on the title.
What is a Survey?
A property survey provides a clear depiction via a sketch or map of the property being purchased showing its boundaries and other physical features. The survey will also show the relative location of a house, shed, other building(s) and fences on the property, and it usually includes the position of any public or private easements. The survey will also show if there is any part of the property that is encroaching on an adjacent property or if an adjacent property is encroaching on the subject property. Surveys must be (i) performed by a Florida Registered Surveyor and Mapper, (ii) signed, dated and sealed, (iii) contain the legal description of the property, (iv) contain appropriate certifications, and (v) contain the North arrow. Typically, the survey must be no more than 10 years old (unless otherwise approved by the underwriter). A plat map is not a survey.
What Is a Title Commitment?
A title commitment is a report prepared prior to issuing a policy of title insurance that provides (i) the name of the proposed insured and the names of the current owner(s), (ii) the type of policy to be issued (owner’s policy or lender policy), (iii) the legal description of the property to be insured, (iv) the amount of coverage, and (v) the title defects, liens and encumbrances which would be excluded from coverage if the requested title insurance policy were to be issued as of the date of the commitment. The parties to a real estate transaction and their agents may then review and consider the listed exceptions and seek the removal of objectionable items prior to closing.
What Is Escrow?
Escrow is the deposit of funds, instruments, or other items to a neutral third party (a trusted licensed individual or attorney) for the purpose of completing a real estate transaction. Escrow facilitates the real estate transaction by managing the disbursement of funds and documents. It allows both the Buyer and the Seller to be sure that all instructions and conditions under the contract have been met prior to the property and funds changing hands.
What Is the Difference Between Title Insurance and Other Types of Insurance?
Title insurance is different from typical insurance policies as it protects against past problems, whereas other types of insurance, like property and casualty insurance, protect against future risks (such as accident or death). Homeowners insurance and warranties protect only the structure and belongings of your home and may provide coverage for loss of use, liability, and medical expenses for accidents that occur on your property. Title insurance protects you against financial loss from real estate title defects or liens against a property.
What is the difference Between a Title Agent and an Underwriter?
A title agent is an attorney or non-attorney authorized to close a real estate transaction on the underwriter’s paper. The underwriter actually insures the transaction.