NORTH CAROLINA REAL ESTATE
TITLE INSURANCE QUESTIONS
(c) 2009 - The Connor Law Firm, PLLC
www.connorlaw.com
E-mail: gc@connorlaw.com
5. How much does Title Insurance cost and do I need to pay it every year?
1. What is Title Insurance? How does Title Insurance differ from Homeowners/Hazard Insurance and Private Mortgage Insurance (PMI)?
Title Insurance protects your equity in your property by insuring against future title disputes based on defective titles, encumbrances, or adverse claims against your title. Specifically, the Title Insurance Company will: a) pay any person with a claim to your title that was missed due to errors in title examination or recording; b) pay any loss from hidden defects in title and defects not of public record; and c) pay all legal fess associated with defending your title and adjudicating such claims in order to eliminate defects to your title. The Lender has its own policy, but that only insures up to the loan amount, which is often less than the value of the property.
Homeowners/Hazard Insurance protects you and the Lender against loss due to damage by fire or other natural disaster. Unlike Title Insurance, which just protects your title to the land itself, Homeowners Insurance covers the improvements on the land (namely, the house) as well as the personal property contents inside.
Private Mortgage Insurance (PMI) is insurance to protect the Lender in case you default on the loan. Usually you make a down payment on the house at closing. The Lender normally requires you to put down 20% of the property’s value so that the Lender only needs to loan you 80%. That way, if you were to default, the Lender would most likely obtain the amount owed on the loan at the foreclosure sale.
However, many Buyers cannot afford to put down 20% at closing—instead they want to put less down and obtain a higher loan. To protect its investment, the Lender obtains insurance from a private insurance provider, called Private Mortgage Insurance (PMI). If you default, the PMI Company pays off the debt to your Lender and then comes after you for reimbursement. You usually pay part of the PMI premium at closing and then monthly over several years until you have 20% equity in your home.
With conventional loans (as opposed to VA and FHA loans), PMI is usually not required if you make a down payment of at least 20% of the property’s value.
2. What’s the difference between Title Insurance and a Title Search; Why do I need to pay a Title Insurance Policy premium if I’m already paying for a title search?
The title search is necessary in order for the closing attorney to obtain a Title Policy on your behalf. The closing attorney affirms to the Title Insurance Company that according to the public records, the title is free from identifiable encumbrances that would bring down the property’s value and thus cloud the title.
But a mere title search is not sufficient to protect your investment and equity in the property—Title Insurance goes one step beyond to insure against loss due to unlikely risks that the attorney could not possibly have found in her title search, including, but not limited to, the following>>>
• forged signatures and documents
• fraud or undue influence in connection with execution of documents
• unsatisfied mortgage, lien, judgment
• claims of undisclosed or missing heirs
• wills not properly probated
• birth of heir(s) subsequent to the date of a will
• clerical mistakes and indexing errors by the Deed’s office; non-delivery of deeds
• incorrect representation of marital status of grantors.
3. What happens if my closing attorney’s title search missed something and later on, a dispute or problem arises challenging my title to the property?
Title Insurance protects your equity in your property by insuring against future title disputes based on defective titles, encumbrances, or adverse claims against your title. The Title Insurance Company not only insures against errors in title examination or recording, but more importantly, Title insurance goes one step beyond to insure against loss due to unlikely risks that the attorney could not possibly have found in her title search, including, but not limited to, the following:
• forged signatures and documents
• fraud or undue influence in connection with execution of documents
• unsatisfied mortgage, lien, judgment
• claims of undisclosed or missing heirs
• wills not properly probated
• birth of heir(s) subsequent to the date of a will
• clerical mistakes and indexing errors by the Deed’s office; non-delivery of deeds
• incorrect representation of marital status of grantors.
Specifically, the Title Insurance Company will: a) pay any person with a claim to your title that was missed due to errors in title examination or recording; b) pay any loss from hidden defects in title and defects not of public record; and c) pay all legal fess associated with defending your title and adjudicating such claims in order to eliminate defects to your title.
4. What is the difference between an “Owner’s Title Insurance Policy” and a “Lender’s Title Insurance Policy”? Why do I need an Owner’s Policy if the Lender is already getting a policy?
The Lender has its own policy, but that only insures up to the loan amount to protect its own interest in the property, which is often less than the value of the property. The Owner’s Policy protects your equity and thus insures for the amount of the purchase price. If you did not get your own policy, then if an adverse claim arose in the future, you would not be covered by the Lender’s policy and would thus have to pay all expenses involved with defending your title—you could even lose all your equity or worse, the property altogether.
5. How much does Title Insurance cost and do I need to pay it every year?
For an Owner’s Title Insurance Policy, there is a one-time premium, which insures your home for as long as you have an interest in it. You would not need to purchase a new Owner’s Policy until you bought a new home. The only time you would be required to pay for title insurance again on the home you currently own is when you refinance. Remember that in addition to the Owner’s Policy, there is a Lender’s Policy. When you refinance, the new Lender will want a new Lender’s Policy issued, not only for an updated title search to ensure you still hold good title, but also to remove the prior Lender and loan amount and list the new Lender and loan amount. Therefore, at a refinance closing, there will be a charge for a title insurance premium. Although that premium is for the new Lender, not you, you still bear the cost since the borrower always bears the closing costs. But note that the premium for this Lender policy will be modest, as the title company offers large discounts if you already have a title policy on the property issued during the previous 15 years.
6. When I refinanced my house, I was charged for Title Insurance again—I thought Title Insurance was a one-time fee that is paid when you first buy a house?
Remember that in addition to the Owner’s Policy, there is a Lender’s Policy. When you refinance, the new Lender will want a new Lender’s Policy issued, not only for an updated title search to ensure you still hold good title, but also to remove the prior Lender and loan amount and list the new Lender and loan amount. Therefore, at a refinance closing, there will be a charge for a title insurance premium. Although that premium is for the new Lender, not you, you still bear the cost since the borrower always bears the closing costs. But note that the premium for this Lender policy will be modest, as the title company offers large discounts if you already have a title policy on the property issued during the previous 15 years.
(c) 2009 - The Connor Law Firm, PLLC
www.connorlaw.com
E-mail: gc@connorlaw.com