What is title insurance?
If you’re refinancing your home or trying to buy a new home, the term Title Insurance will come up at some point. An incredible number of people have no idea what title insurance is, but they buy it every day. Simply put, title insurance is a policy that limits the risk to the buyer, owner, and lender of a real estate transaction. Insurance may not financially protect all 3 of you on every deal, but by eliminating liability risk, title insurance has a positive effect on all parties involved.
At one time, if a person wanted to buy a property, they would contact a lawyer to investigate the property. The attorney would make a trip to the courthouse and pull out all the necessary records to make sure the property is free of mortgages, tax liens, municipal liens, and judgments. He would make sure the person(s) selling the property is the actual owner(s) of record and also research the chain of title to make sure the way in which the owner acquired the property do not file any claim. to other individuals or groups. If the person buying the property needed a loan, the lawyer would assure the bank that the property was clean or had liens, that is, any liens or other property rights that might be infringed. As time passed and banks became multinational, some form of insurance became more necessary to indemnify banks in case there was a problem after closing. Lawyers still understood a good deal of title insurance in the United States. Nevertheless, title companies appeared to specialize in this type of transaction. In many cases, for simple residential transactions, title companies are faster and more efficient in getting you through the lender’s process. Banks like Chase or Bank of America; I have no idea who owns what or which attorney to use as far as insuring them against risk in any given area. Therefore, they allow the borrower to choose a title company or attorney to issue insurance to protect them.
Refinancing
In many ways, a lender’s policy and a homeowner’s policy are similar. If a person is refinancing, title insurance is purchased, at the borrower’s expense, to assure the new bank that their mortgage will be in first lien position in court after closing. At this point the Bank may request a title insurance commitment. This commitment is required for most loans, as the Bank will request a Title Policy from the Lenders. The title company searches the court records and examines them. In Pennsylvania, deeds, mortgages, liens, etc. they are registered in the order in which they arrive at the courthouse. Therefore, if you have a previous mortgage and the bank records a new mortgage, the new mortgage will be in second lien position. In this case, the old mortgage would prevail over the new mortgage in terms of foreclosure rights. The old Mortgage, once settled, would have to be satisfied. And then the new mortgage would rise to the top position in the recorder’s office. This is the main function of the lender’s title insurance in a refinance. The new bank is making sure that if you ever default on your loan with them, they can foreclose on the property to get your money back. The house is the guarantee of the loan and they are only protecting themselves.
shopping
When you take possession of real estate, you want to have guarantees for many different risks that are involved in that type of transaction. The first of which is proper owner identification. I’m sure you’ve heard the old “Brooklyn Bridge” phrase in regards to chumps and real estate. Title companies check it for you. I have had people try to kick me off property that not only did they not own, but they had no idea who the real owners were. As the proposed owner, you also need to know if there is any kind of bond attached to the property. There are many types of links but the most common are; Mortgages, Judgments, Tax Liens and Municipal Liens. These types of links bind to the property, not just the owner who incremented it. Therefore, if that owner transfers ownership to him and nothing is done about these links, he will keep them. You may not be financially responsible for them, but these types of links do not take into account who actually owns the property; they only care about getting paid. If you keep someone else’s back taxes, the tax collector doesn’t care. The government wants your money and will sell your house to get it. Therefore, I cannot stress enough the importance of having a qualified licensed title company examine your potential investment.
I would just like to reiterate that the potential risks that are involved with real estate are so numerous and vast that it is easy to see why most banks and mortgage brokers require it and most people who are in the real estate business they realize why it is so vital to the process. It’s great to take some comfort in the fact that the land has been researched and is ready to be transferred. Keep in mind the notion that it’s a one-time fee for the security that you’re taking ownership and only have to worry about the future, not the past. And, an owner’s policy lasts as long as you and your heirs own the property, where else can you get that kind of convenience for you and your family?
