Title Insurance FAQ's

Learn more about title insurance and what's involved with the settlement process by reading the following title insurance FAQ. Also see our title insurance glossary and links and resources pages.

FAQ's & Answers about Title Insurance:

Table of Contents:

1. What do title companies do? And why do I need one?
2. What are the specific details involved in a settlement?
3. Who chooses the settlement company?
4. What is a Title?
5. What is title insurance?
6. Why do I need Title Insurance?
7. What does Title Insurance cost?
8. If I have a problem, will I have to lose my property to make a claim?
9. If my lender obtains title insurance, why do I need it too?
10. What types of claims or risks are covered by title insurance?
11. What is Ground Rent?
12. Why is transferring the title to real estate different than transferring the title to other items, such as a car?
13. What are Specific Settlement Costs?
14. How are the Cost divided between the Buyer and Seller?
15. What items are needed at closing?

Q: What do title companies do? And why do I need one?
A: Title companies provide title insurance services to buyers, sellers, lenders and developers, essentially anyone who has an interest in real estate. Services vary throughout the country, depending on local practices and laws. In many states, title companies handle escrow as well as perform and insure title searches. A title search involves searching public records to ascertain if the seller has the legal right to sell the property. In other states, attorneys conduct title searches. A title company can be central to the transaction. Here's how:

1. It reviews the owner history of the property, checking for who purchased the property, who sold it, and when.
2. It performs a tax search to verify the present status of taxes.
3. Some title companies conduct on-site inspections to verify lot size, the location of improvements, and evidence of unrecorded easements.
4. It conducts a judgment search to determine whether there are any general liens against the property.
5. It issues a "Commitment of Title Insurance" to the lender after completion of the title search. It receives instructions and documents for the closing, and prepares a final Settlement Statement. At the closing, which may take place at the title company's office, the title company is responsible for collecting and disbursing the monies

Q: What are the specific details involved in a settlement?
A: Appraisals, title searches, surveys, on-site inspections, document processing and preparation, attorney review, title policies, mortgage and lien payoffs, recording with courts, escrowing and overall quality review. At Patriot Title, we coordinate all of these items and make sure it’s presented at a time convenient to you and the other parties in the real estate transaction. At Patriot Title, these documents will be presented to you for your careful review. Here is a list of these documents:

1. HUD-1 Settlement Statement
2. Note
3. Deed
4. Sales/Broker Commission
5. Items Payable in Connection with Loan/Fees, Points, Reports, etc.
6. Items required by Lender to be Paid/Prepayments
7. Reserves Deposited with Lender/Escrows
8. Title Fees & Costs
9. Government Recording and Transfer Charges
10. Miscellaneous Settlement Charges & Fees

Q: Who chooses the settlement company?
A: In most states, the person refinancing or purchasing a property selects the closing agent. Sometimes homebuilders or lenders suggest an affiliated firm and offer to pay associated fees for using that company. But it's always a matter of choice.

Q: What is a Title?
A: A Title is the evidence, of right, that a person has to the ownership and passions of land. It is possible that someone other then the owner has legal right to the property. If that right can be established, this person can claim the property outright or make demands to the owner as to its use.

Q: What is title insurance?
A: An insurance policy which protects the insured against loss should the condition of title to land be other than as insured.

Q: Why do I need title insurance?
A: When you buy a home, or any property for that matter, you expect to enjoy certain benefits from ownership. For example, you expect to be able to occupy and use the property as you wish, to be free from debts or obligations not created or agreed to by you, and to be able to freely sell or pledge your property as security for a loan. Title insurance is designed to cover these rights.

Q: What does title insurance cost?
A: The cost varies, depending mainly on the value of your property and the rates charged in a particular state. The important thing to remember is that you only pay once for owner’s coverage, and then the coverage continues in effect for so long as you have an interest in covered property. If you should die, the coverage automatically continues for the benefit of your heirs. If you sell your property, giving warranties of title to your buyer, your coverage continues. Likewise, if a buyer gives you a mortgage to finance a purchase of covered property from you, your coverage continues to protect your security interest in the property.

Q: If I have a problem, will I have to lose my property to make a claim?
A: Not at all. At the mere hint of a claim adverse to your title, you
should contact your title insurer or the agent who issued your policy. Title insurance includes coverage for legal expenses which may be necessary to investigate, litigate or settle an adverse claim.

Q: If my lender obtains title insurance, why do I need it, too?
A: The lender's policy covers only the amount of its loan, which is
usually not the full property value. In the event of an adverse claim, the lender would ordinarily not be concerned unless its loan became non-performing and the claim threatened the lender's ability to foreclose and recover its principal and interest. And, in the event of a claim there is no provision for payment of legal expenses for an uninsured party. When a loan policy is being issued, the small additional expense of an owner's policy is a bargain.

Q: What types of claims or risks covered by title insurance?
A: We offer two levels of coverage:

Standard Coverage handles such risks as:
1. Forgery and impersonation
2. lack of competency, capacity or legal authority of a party
3. deed not joined in by a necessary party (co-owner, heir, spouse, corporate officer, or business partner)
4. undisclosed (but recorded) prior mortgage or lien
5. undisclosed (but recorded) easement or use restriction
6. erroneous or inadequate legal descriptions
7. lack of a right of access
8. deed not properly recorded

The Enhanced Policy covers all of the risks listed above plus:
1. off-record matters, such as claims for adverse possession or prescriptive easement
2. deed to land with buildings encroaching on land of another incorrect survey
3. silent (off-record) liens, such as mechanic's or estate tax liens
4. pre-existing violations of subdivision laws, zoning ordinances or CC&R's (Covenants, Conditions & Restrictions)
5. post-policy forgery
6. Forced removal of improvements due to lack of building permit (subject to deductible)
7. post-policy construction of improvements by a neighbor onto insured land
8. location and dimensions of insured land (survey not required)

Q: What is Ground Rent?
A: Ground Rents originated in Colonial America, to allow the colonists to own homes without paying for the land on which they lived. With a Ground Rent, you pay the Ground Rent owner an annual amount (typically
in semi-annual payments) to remain on the property. Pre-existing violations of subdivision laws, zoning ordinances or CC&R's (Covenants, Conditions & Restrictions) So long as the annual payments are made, the owner of the Ground Rent cannot remove you from the property. Hence, an individual may own the home in which he/she lives, but lease the property on which the home sits. Ground Rents created after April 8, 1884 may be redeemed or purchased from the Ground Rent owner (some Ground Rents created prior to April 9, 1884 may not be redeemable), by paying an amount equal to the annual Ground Rent multiplied by:
1. at 25 (which is a capitalization at 4%), if the ground lease was executed from April 8, 1884 to April 5, 1888, inclusive;
2. 8.33 (which is a capitalization at 12%), if the ground lease was or is created after July 1, 1982; or
3. 16.66 (which is a capitalization at 6%), if the ground lease was created any other time.

To redeem a $120.00 annual Ground Rent which was established in 1960, you would pay the Ground Rent owner $2,000.00 ($120.00 x 16.66).

Q: Why is transferring the title to real estate different from transferring the title to other items, such as a car?
A: Because land is permanent and can have many owners over the years, various rights in land may have been acquired by others (such as mineral, air, or utility rights) by the time you come into possession of it, even if the land has never before been built upon. In order to transfer a clear title to a piece of land, it is first necessary to determine whether any rights are outstanding.

Q: What are specific settlement costs?
A: Section 100 summarizes the borrower’s costs, such as the contract cost of the house, any personal property being purchased, and the total settlement charges owed by the borrower from Section L. Beginning at line 106, adjustments are made for items (such as taxes, assessments, fuel) that the seller has previously paid. If you will benefit from these items after settlement, you will usually repay the seller for that portion of the cost.

Q: How are the Cost divided by the Buyer and Seller?
A: At settlement it is usually necessary to make an adjustment between buyer and seller for property taxes and other expenses. The adjustments between buyer and seller are shown in Sections J and K of the HUD 1 Settlement Statement. In the example given above, the taxes, which are payable annually, had not yet been paid when the settlement occurs on July 1. The borrower will have to pay a whole year's taxes on the following December 1. However, the seller lived in the house for the first six months of the year. Thus, one ¬half of the year's taxes are to be paid by the seller. Accordingly, lines 211 and 511 on the HUD 1 Settlement Statement would read as follows

211. County taxes 1/1/97 to 6/30/97 $600.00 511. County taxes 1/1/97 to 6/30/97 $600.00

The borrower is given credit for this amount at the settlement and the seller will pay this amount or count it
as a deduction from sums payable to the seller.

Similar adjustments are made for homeowner association dues, special assessments, and fuel and other
utilities, although the billing periods for these may not always be on an annual basis. Be sure you work out these
cost sharing arrangements or “perorations” with the seller before the settlement. You may wish to notify utility companies of the change in ownership and ask for a special reading on the day of settlement, with the bill for
pre-settlement charges to be mailed to the seller at his or her new address or to the settlement agent.
This will eliminate much confusion that can result if you are billed for utilities used when the seller owned the property.

Q: What items are needed at closing?
A: Buyer:
1. Cashier's check to made payable to Title Company
2. Proof of purchase of insurance for fire, casualty, etc.
3. Invoices for any unpaid items such as insurance, inspections or any other unpaid items related to the closing.
4. Photo identification (driver's license, passport, or state-issued identification card)

Seller:
1. Photo identification (driver’s license, passport, or state-issued identification card)
2. Invoices for any unpaid taxes, utilities, assessments, and any other unpaid items that should be paid at closing.

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