Get the Facts on Title Insurance
Find the answers to many of your title insurance questions here. If you have a specific question or a unique challenge in your real estate transaction, and would like an expert opinion, please contact us for a quick response.
Title Insurance Basics
There are two main types of title insurance: owner’s title insurance, which protects the new property owner from title defects, and lender’s title insurance, which protects your mortgage lender.
Title insurance provides you with the assurance that the seller owns the property and has the legal right to convey it to you free and clear of all liens and judgments. Should a dispute regarding ownership of the property arise after you’ve purchased the property, your title insurance would protect both you and your lender from financial loss. The owner would be protected up to the purchase price and the lender up to the loan amount. Additionally, title insurance often times covers both parties in the event a claim arises due to an unpaid mortgage against the property, unpaid real estate or estate taxes, as well as unpaid municipal utility liens created by a previous owner.
The cost of title insurance for a sale is determined by the purchase price for the property and for a refinance, the loan amount determines the premium amount. Title insurance premiums, which are filed with and approved by the state department of insurance, are a one-time payment paid at closing. As of October 2014, the state of New York requires all title companies to disclose all title related fees on their company website. This is not a requirement in Pennsylvania, although most reputable companies already provide this information.
In Pennsylvania, there are different title insurance rates for a home purchase versus a refinance. In addition to the title insurance, most lenders require additional coverage referred to as policy endorsements along with a closing services letter. There are fees for these additional items, which are also filed with and approved by the state. Your title insurance company may also charge you administrative fees for services such as preparing, notarizing and mailing documents, incoming/outgoing wire fees or a closing fee for conducting the settlement. Although they’re not specifically considered title fees, you should anticipate county recording fees for any documents that are required to be recorded with the county in which the property is located. If applicable to your transaction, the following documents will need to be recorded: the deed, mortgage, power of attorney, assignment of leases & rents and assignment of mortgage.
The title insurance company plays in integral role in your real estate transaction. Your title insurance company will insure that the person(s) selling you the property is the rightful owner and has the legal capacity to transfer title, all liens and judgments affecting the property to be purchased have been or are in the process of being satisfied and they conduct your closing and make all final disbursements. They also serve as the liaison for your purchase or refinance, coordinating with your real estate professional, mortgage lender, seller(s) and attorney. These services are included in the premium you pay for title insurance so you shouldn’t expect to see any other administration or service fees.
The title search is typically a swift and efficient process. Performing a title search on the property to be purchased is the first step in the settlement process, and is rarely cause for delays. Getting a title commitment back usually takes about 3 to 5 business days, which confirms that the seller is the legal owner of the property, and that there are no unsettled liens. In rural areas where official deeds and records may be a little harder to access, it may take an extra day or two. In more populated areas, it’s possible to have the search completed within 24 hours if necessary.
Lender’s title insurance is mandatory on both real estate purchases secured by a mortgage and mortgage refinances. For purchase transactions an owner’s title insurance policy is optional, but recommended.
“Controlled Business Relationships,” sometimes referred to as “Affiliated Business Arrangements,” are business agreements between multiple parties that are designed to legally distribute profits received from third party settlement service providers to a member who is referring business. It is not uncommon for real estate agents/brokers or mortgage lenders to have an ownership interest in the “in-house title company that they are referring you to. These agreements are governed under RESPA (Real Estate Settlement Procedures Act) and have been the subject of many class action law suits as well as fines and penalties handed down by the Federal government over the last few years. Under the terms of these arrangements, the referring party must have his/her customer sign a disclosure that notifies the customer of the nature of the business relationship, his/her/their specific financial interest and informs the customer that they are under no obligation to use the third party service provider.
The short answer is that as a home buyer, Owner’s Title Insurance offers essential protection against the unknown. Legally, it is not required, but let the buyer beware…
Read more about Owner’s Title Insurance to learn what it is, what it covers and how much it costs.
Ordering Title Insurance
In both Pennsylvania the homebuyer/borrower can choose their own title company. The decision is not up to the seller, the real estate broker/agent or the lender. Once you’ve had an opportunity to compare the fees and services of several companies you should notify your real estate agent and lender as to which company you choose to hire. In many cases the real estate agent or lender will submit the order on your behalf, but feel free to submit it yourself if you prefer.
We suggest that you start searching for a title insurance company when you start shopping for a lender. This allows you the opportunity to compare fees and services of several companies before you become overwhelmed with finding the perfect house. Most reputable title companies will complete your title search and issue a title commitment in about a week, if necessary. You can place your order to begin the process once you have a fully executed agreement of sale. Often times a title company will start the process, but not complete the search until all inspections have been completed and the lender confirms that they’re satisfied with the property appraisal.
When comparing title insurance quotes from several different companies, you want to make sure that you’re comparing apples to apples. If you’re paying cash for the property, the owner’s title insurance policy is optional and there will be no lender’s policy. In Pennsylvania, if you’re going to have a mortgage, you should see at least three lender required fees on your title insurance quote for either a purchase or refinance.
- Lender title insurance premium
- Lender endorsements
- Lender closing services letter
If you don’t see any reference to the following fees on a quote that you’re reviewing, don’t assume that you won’t see them at the settlement table. Closing fee, notary fee, wire fee, courier fee, electronic document fee, document preparation fee and county recording fees. A reputable title company will provide you with a complete and accurate quote that contains all of the title related fees.
The Lender’s Policy insures your lender, and the coverage is based on your loan amount which may or may not be the full sale price. An Owner’s Policy is a separate policy which insures the homeowner, and the coverage is based on the purchase price. Although the owner’s title insurance is optional, the owner’s premium is based on the difference between the loan amount and the purchase price making it very inexpensive in most cases. There is also an enhanced homeowner’s title insurance policy available to individuals and trusts purchasing 1 to 4 family residential properties or condominiums. The enhanced policy is available on owner occupied properties only and not available to investors or on vacant land. The enhanced policy provides additional coverage for issues that may arise post-closing. The enhanced policy is subject to policy deductibles and limitations. Additionally, your lender does not require that you purchase the enhanced policy to protect their interests.
Don’t be fooled… Although title insurance premiums are filed with the state and for the most part are non-negotiable, you can still save hundreds of dollars in miscellaneous title fees by shopping around. Many real estate brokers/agents will ask you to sign a disclosure form, or an authorization giving them permission to order title insurance on your behalf. However, you are not obligated to use their in-house service providers and should take the time to compare quotes and services offered before agreeing to hire anyone.