What is Title Insurance and Why do I need it?

    Written By: Kim Bosshardt, Esq.

    There are two types of title insurance Bosshardt Title Insurance Agency, LLC offers: Owners’ policies and Lenders’ (or mortgagees’) policies.

    As a buyer, you want assurance that your investment is protected. The Owner’s Title Insurance Policy will protect you as a the buyer against a title defect in your ownership. The policy will be issued in the amount of the sales price. The title underwriter agrees to defend you up to the value of the policy. The Owner’s Title Insurance Policy protects your investment in property based on the title of the past. The title underwriter agrees to write an Owner’s Policy based on a title commitment–that is a title search of the property which will list defects needed to make the title marketable, for example paying off a mortgage. If it is discovered after closing that a defect exists, for example, that a missing heir has an ownership interest based on an unprobated will from a predecessor in a title, then the title insurance policy will defend you in court if your title is disputed or will pay to cure the title defect. The title insurance policy will guarantee that based on the date the deed was recorded in the insured’s name, that the tile was free of defects, except from those listed exceptions on the policy. Once you have an owner’s title insurance policy, it never expires during your ownership. In addition, if you sell the property within three years, you are entitled to an automatic discount on the title insurance called “re-issue” credit. You are also entitled to this credit whenever you refinance. Sometimes sellers ask “Why do I need to pay for title insurance,when I have a title insurance policy and I know I have good title?” The real estate contract used in this area–the FAR-BAR (Florida Association Realtors-Florida Bar form), requires title insurance. In this area, the seller typically pays for the title insurance policy by choosing the settlement agent. Further, buyers will want assurance and insurance that the title is marketable–more than the “seller’s word.” Title insurance premiums are based on the sales price of the property and the age of the pre-existing policy. You can easily estimate your closing costs and cost of title insurance by using our title insurance quote application on our website: www.bosshardttitle.com. When the settlement agent issues both an owner’s title insurance policy and a lender’s title insurance policy simultaneously at closing, the policy in the lesser amount (typically the loan amount) cost of premium, no matter what the loan size, so long as it is less than the owner’s policy amount, will only be $25.00. This is called simultaneous issue rate. If a buyer is getting a loan, most lenders will require a lender’s title insurance policy.

    If you are purchasing property using financing, your lender will also want assurance that their investment is protected. Most Lenders require an additional policy, a Loan Policy, be issued because the property is being provided as security for the loan. Before the title policy is issued, a title search is completed to show any limitations on the use of the property as well as who else may have an interest in the property. In the case of the Loan policy, it is very important to know if anyone else has a claim to the property that may block or supersede the Lender’s interest in the property. If the Lender’s interest does not come first, after that of the homeowner, they may be barred from exerting their rights to the property. Thus, Lender wants to know of any potential defects or additional parties that can potentially hinder the Lender’s ability to foreclose should you default on the loan. This information helps the Lender assess and determine their own risks in financing your purchase. Under Florida law, the Loan policy, when issued simultaneously with an Owner’s policy, typically costs only $25. The Loan policy only costs more when the loan amount is greater than the purchase price. This is because the Loan policy is issued based solely on the amount of the loan and not based on the total purchase price of the property. In obtaining a Loan Policy, the Lender is only interested in protecting its security based on the loan amount– not any additional interest you may have as the new owner. Therefore, as a buyer, your equity in the property is not covered by the Loan policy making even more important for you to also obtain your own title insurance in the form of an Owner’s policy. This will assure that your interest in the property is also protected against potential defects or ownership claims. Further, the Loan Policy only protects the Lender’s interest so long as there is an outstanding balance. Once the Loan is paid off, the Lender no longer has an interest in the property and therefore, no longer has the protection of title insurance. The Loan policy protection also changes over time as the balance changes. As the Loan balance decreases so does the amount of coverage under the Loan policy. This is not the case with an Owner’s Policy. The Owner’s policy protects you for the full purchase price of the property for the duration of your ownership and in some instances, even continues after you sell the property.

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    2 Responses to “What is Title Insurance and Why do I need it?”

      • Michelle Schibuola

        Written on

        Great Question!

        In a typical transaction, the seller pays for the owner’s title insurance policy. The value of the title insurance is the sales price. This insures to the buyer that there is marketable title and that there are no liens or encumbrances on the property. It means that they shouldn’t have a problem when they sell the property. In a cash transaction, a survey is not required. Additionally, since there is no lender, there is no lender’s title insurance policy which is paid for by the buyer. Most lenders require a FF9 endorsement which requires a survey. Generally, it is best practice to get a survey, even if one is not required. Finally, buyers who obtain an owner’s title insurance policy should keep their policy in a safe place for the following reasons:

        1) It insures that the owner has good title. If something comes up later, they can rely on this. For example, we had a closing recently where the title commitment showed 2 outstanding mortgages. One was the seller’s mortgage and one was a predecessor in title (previous seller) that hadn’t been satisfied. The seller’s title insurance policy satisfied us not having to find the previous seller and getting a formal satisfaction.

        2) It will save owners money whenever they refinance and need to buy a lender’s title insurance policy.

        3) It will save owner’s money if they sell and close within 3 years of the purchase date.

        Reply

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