Closing 101, Part 10 of 10: Common Title Problems

AN EDUCATIONAL INITIATIVE OF THE AMERICAN LAND TITLE ASSOCIATION

Here are three short stories on some common title problems:

Fraud & Forgery

(NAPS) — Those involved in real estate fraud and forgery can be clever and persistent, which can spell trouble for your home purchase. In a western state, an innocent buyer purchased an attractive home site through a realty company, accepting a notarized deed from the seller. Then another couple, the true owners of the property — who lived in another locale — suddenly appeared and initiated legal action to prove their interest in the real estate was valid. Under the Owner’s Title Insurance Policy of the innocent buyer, bought for a one-time fee at closing, the title company provided a money settlement to protect against financial loss. As it turned out, the forger spent time in advance at the local court house, searching the public records to locate property with out-of-town owners who had been in possession for an extended period of time. The individual involved then forged and recorded a deed to a fictitious person and assumed the identity of that person before listing the property for sale to an innocent purchaser, handling most contacts through an answering service. Also, the identity of the notary appearing on deeds was fictitious as well.

Fraud and forgery are examples of hidden title hazards that can remain undetected until after a closing despite the most careful precautions. Although emphasizing risk elimination, an Owner’s Policy protects you financially through negotiation by the insurer with third-parties, payment for defending against an attack on the title as insured, and payment of valid claims.

Conflicting Wills

(NAPS) — Conflicts over a will from a deceased former owner may suggest a study topic for law school. But the subject can take on a reality dimension and all too quickly your home ownership is at stake. After purchasing a residence, the new owner was startled when a brother of the seller claimed an ownership interest and sought a substantial amount of money as his share. It seemed that their late mother had given the house to the son making the challenge, who placed the deed in his drawer without recording it at the court house. Some 20 years later, after the death of the mother, the deed was discovered and then filed. Permission was granted in probate court to remove the property from the late mother’s estate, and the brother to whom the residence initially was given sold the house. But the other brother appealed the probate court decision, claiming their mother really did not intend to give the house to his sibling. Ultimately, the appeal was upheld and the new owner faced a significant financial loss. Since the new owner had acquired an Owner's Policy of Title Insurance upon purchasing the real estate, the title company paid the claim, along with an additional amount in legal fees incurred during the defense.

Missing Heirs

(NAPS) - When buying a home, it's important to remember what you don't know can cost you. A couple purchased a residence from a widow and her daughter, the only known heirs of the husband and father who died without leaving a will. Soon after the sale, a man appeared - claiming he was the son of the late owner by a former marriage. As it turned out, he indeed was the son of the deceased man. This legal heir disapproved of his father's remarriage and had vanished when the wedding took place. Nonetheless, the son was entitled to a share of the value of the home, which meant an expensive problem for the unwary couple purchasing the property. Although the absence of a will hindered discovery of the missing heir in a title search of the public records, an Owner's Policy of Title Insurance issued for a one-time fee at the time of the real estate transaction would have financially protected the couple from the claim by the missing heir. For a one-time charge at closing, an Owner's Policy will safeguard against problems including those even an exhaustive search will not reveal.

An Owner's Policy is necessary to fully protect a home buyer. Lender's title insurance, which is usually required by the mortgage lender, serves as protection only for the lending institution.

Closng 101, Part 9 of 10: Why You Need Title Insurance

AN EDUCATIONAL INITIATIVE OF THE AMERICAN LAND TITLE ASSOCIATION


When you purchase your home, how can you be sure that there are no problems with the home's title and that the seller really owns the property? Problems with the title can limit your use and enjoyment of the property, as well as bring financial loss. That is what a title search and title insurance are for.

The Title Search

After your sales contract has been accepted, a title professional will search the public records to look for any problems with the home's title. This search typically involves a review of land records going back many years. More than 1/3 of all title searches reveal a title problem that title professionals fix before you go to closing. For instance, a previous owner may have had minor construction done on the property, but never fully paid the contractor. Or the previous owner may have failed to pay local or state taxes (See below for some other common title problems). Title professionals seek to resolve problems like these before you go to closing. What happens if a problem arises after you move in? Read on. (If you are refinancing, scroll down or click here to jump ahead and learn more about what you can expect.)

The Owner's Title Policy

Sometimes title problems occur that could not be found in the public records or are inadvertently missed in the title search process. To help protect you in these events, it is recommended that you obtain an Owner's Policy of Title Insurance to insure you against the most unforeseen problems.

Owner's Title Insurance, called an Owner's Policy, is usually issued in the amount of the real estate purchase. It is purchased for a one-time fee at closing and lasts for as long as you or your heirs have an interest in the property. Only an Owner's Policy fully protects the buyer should a covered title problem arise with the title that was not found during the title search. Possible hidden title problems can include:

• Errors or omissions in deeds

• Mistakes in examining records

• Forgery

• Undisclosed heirs

An Owner's Policy provides assurance that your title company will stand behind you — monetarily and with legal defense if needed — if a covered title problem arises after you buy your home. The bottom line is that your title company will be there to help pay valid claims and cover the costs of defending an attack on your title. Receiving an Owner's Policy isn't always an automatic part of the closing process, and is paid for by different people in different parts of the country. Be sure you request an Owner's Policy and ask how it is paid for where you live. No matter who pays for the Owner's Policy, the fee is a one-time fee paid at closing. The Owner's Policy protects you for as long as you or your heirs have an interest in the property.

You also have the option of purchasing a policy with expanded coverage. It's called the Homeowner's Policy and it covers more things than the Owner's Policy. Ask your local title company for an explanation of the expanded Homeowner's Policy so you can decide which policy is the best one for you.

The Loan Policy

There are two types of title insurance: Owner's title insurance, as mentioned above, and Lenders title insurance, also called a Loan Policy. Most lenders usually require a Loan Policy when they issue you a loan. The Loan Policy is usually based on the dollar amount of your loan. It only protects the lender's interests in the property should a problem with the title arise. It does not protect the buyer. The policy amount decreases each year and eventually disappears as the loan is paid off.

Prices vary from state to state. Be sure to ask your settlement or title company about pricing and whether the Loan Policy and Owner's Policy are sold separately or together.

The Closing Process, Part 8: Shopping for Title Insurance

AN EDUCATIONAL INITIATIVE OF THE AMERICAN LAND TITLE ASSOCIATION


In most states, consumers are free to shop for title insurance and to select a title company, settlement company, or attorney to conduct their closing. (Ask a local title company if consumers are able to shop for title insurance in your state.) Many consumers rely on their real estate agent or lender for a recommendation for a title company since they are in a position to know which companies provide good service. However, you are not required to use the title company they recommend. If you decide to choose your own title company, we encourage you to shop for title insurance. There are some things to keep in mind, however, which vary from state to state. And there are some terms you will want to know when speaking with title companies asking for a rate quote.


Types of Title Insurance

Knowing what you are asking for is your first step in shopping for title insurance rates. There are two kinds of title insurance: the Loan Policy, which protects the lender's investment, and the Owner's Policy of Title Insurance, which protects the buyer's interests. If you are obtaining a loan to purchase your house, the lender will usually require that you purchase a Loan Policy to protect their investment. We strongly encourage consumers to obtain an Owner's Policy for a one-time fee paid at closing to protect their interests. Who pays for the Owner's Policy varies from state to state and sometimes even within a state. For instance, on much of the West Coast, the seller would purchase the Owner's Policy for the buyer. On the East Coast, however, the buyer usually pays for the Owner's Policy. An Owner's Policy is not automatically issued in every state. Be sure to ask your local title company or real estate agent how it's handled in your area and whether the Loan and Owner's policies come together or are sold separately.

How Title Insurance Rates are Set

How title insurance rates are set varies from state to state. Some rates are set by the companies themselves and some are set by the State Department of Insurance. For those states that set the rates (Florida, New Mexico, and Texas), each title company is required to charge the same for title insurance for each different type of policy and for each different type of rate. Some other states, including but not limited to, NY, PA, NJ, OH, and DE, which have rating bureaus authorized under state law, may have uniform rates as well. When shopping in the states listed above, you will receive similar rates for title insurance from each company. While title insurance rates may not be as "shoppable" in these states, the cost of other services provided by the title company may or may not be included in the rate so you can shop for those services. Talk to your local title company for how rates are determined where you live.

As mentioned above, some rates may or may not include other services provided by the title company such as conducting the closing, preparing and notarizing documents, adding endorsements to the policy which may be required (usually by the lender or buyer), and other services. When comparing one rate to another, be sure to get detailed information on what is included in that rate, so you are comparing equally.

Rate Terminology

Here are some terms that would be helpful to know when talking to a title company. Ask your title company which of these you may qualify for:

Basic Rate: The rate charged to a consumer who does not qualify for a reduced rate such as, but not limited to, the reissue rate or simultaneous issue rate. (see below).

Reissue Rate: The reduced rate for an Owner's Policy issued on a property which was previously insured within some period of years. In some states, the term is also used for a refinance rate (see below).

Simultaneous Issue Rate: The reduced rate for a Loan or Owner's Policy issued on the same property or loan at the same time as another policy. The term usually refers to a Loan Policy issued at the same time as an Owner's Policy when a property is purchased.

Refinance Rate: The reduced rate for a Loan Policy issued on the new loan in a refinance transaction, in which the original loan was previously insured within some period of years.

Risk Rate: A rate that does not include the cost of researching the title or the cost of conducting the closing.

All-Inclusive Rate: A rate that includes at least some part of the cost of researching the title or the cost of conducting the closing.

Settlement Agents

A settlement agent glues together the process of the sale, working with both the buyer and the seller in the transaction. They research the title, making sure there aren't any liens on the property, pay the seller and the old lender, obtain recording fees and taxes for the government, and file the paperwork at the local courthouse. In effect they orchestrate the settlement from the start to finish.

Closing the sale of your house or business is easy, if you chose the right title company. Title companies, or any settlement agent who performs a closing - attorneys, escrow agents or title insurance companies - are involved in a multitude of activities involved in a closing. Some states require that an attorney conduct the closing. Some escrow agents, and others a title company or agent. Be sure to find out how it's done in your area.

A settlement agent glues together the process of the sale, working with both the buyer and the seller in the transaction. They research the title, making sure there aren't any liens on the property, pay the seller and the old lender, obtain money from the buyer and new lender, obtain recording fees and taxes for the government, and file the paperwork at the local courthouse. In effect they orchestrate the settlement from start to finish.

So how do you find a competent title professional? ALTA recommends going through someone you are already working with - your real estate agent or lender. If you are obtaining a loan, chances are the lender will recommend you use a title company (or attorney if they are required in your state) they are familiar with. If you are not obtaining a loan, ask your real estate agent for a recommendation. Agents and lenders usually have relationships with several title professionals they know are reputable and provide good customer service.

Or ask friends and neighbors if they were happy with their settlement agent and get a referral. You are free to select your own title professional. If you do, there are some things you should look for. How many transactions does the company do? Find out how many employees the company has. A company that does hundreds of closings will be more informed about how to perform the service than a company that does only a few. Is the company sufficiently staffed for the amount of work they do?

Find out if the company is part of the state title association or the American Land Title Association. If they are members, they are keeping abreast of state and federal level current trends and requirements. You can also contact your state insurance department or the Better Business Bureau to see if they have any information on the company.

Keep in mind that settlements vary from state to state and even from county to county. Be sure to ask how it's done in your area so you know what to expect.

Closing 101, Part 7: Glossary of Terms

AN EDUCATIONAL INITIATIVE OF THE AMERICAN LAND TITLE ASSOCIATION

Part 7 of 10 in the "Closing 101" series is a comprehensive glossary of terms. This is a great reference tool for homebuyers and sellers. It's in a printable format or bookmark to your favorites for future reference.