6 Questions to Ask About Title Insurance

Mortgage lenders and property buyers are protected against the problems with a title, which may arise when there is a transfer of property ownership.

The title insurance company may pay the legal damages, specified in the policy if a title dispute arises during a sale.

When issuing title insurance, the title insurance agency, or attorney researches the records in order to make sure that the property title is clean, that there are no undisclosed heirs to the property, unpaid taxes, pending legal action, errors, fraud or other problems with the deed. To put it simple, it will be verified if the seller really owns the property and is free to sell it.

“A title or public record defect, that’s fixed before the transaction closes, is revealed in one out of every three searches,” says Joe Altman, spokesman for Riverside Abstract, a title insurance company, based in New York.

After it is checked that the title of the property is clean, an underwriting company is contracted by the title insurance company, to issue an insurance policy that will pay for the defense if the title is challenged later on, and will compensate the home-buyer for its equity, if he loses.

Home-buyers typically need two title insurance policies, an owner’s policy and a lender’s policy, which protects the lender.

From our visit at Riverside Abstract, we found out which questions should be asked by a home-buyer about title insurance, and we will share them in addition.

1. Are title insurance prices regulated?

In many states, the prices are regulated and that means that there won’t be much of a price difference among companies.

“Home-buyers should look at two factors: the quality of the insurance and the quality of the title search,” says Jeremy Ehrman, an escrow from Riverside Abstract.

According to him, the goal is to find a title company or attorney that will do a thorough search. And he highlights that it is also important to find out an underwriter that will still be around in 10 or 15 years if there’s a problem.

Ancillary expenses such as wire transfer fees or courier fees can add up, even if the title title insurance costs are regulated. So, from Riverside recommend to ask about the complete transaction price, not just insurance costs.

“The difference in price could be wide in areas where the title insurance costs are not regulated. It can be 10 percent, 20 percent or even more,” says Yosef Dreyer, title attorney from Riverside Abstract.

It is important to ask the lender or the state insurance department if your area is cost-regulated.

2. How much coverage do I need?

Typically, owner’s policies protect against a number of contingencies, such as fraud, forgery, undisclosed heirs and spousal claims.

If additional coverage is requested, it could boost the price. The Riverside’s title attorney gives an example: a restriction endorsement could protect you if the construction of your home inadvertently violates the restrictions of your subdivision. An additional insurance on the property or mortgage might be required by the lender. This can be an adjustable-rate mortgage (ARM) endorsement guarantees that the lender is first in line for repayment if the home goes into foreclosure, says the Riverside attorney.

3. Who usually pays for title insurance?

From Riverside point out that the party responsible for paying for the buyer’s and the lender’s policy may vary from state to state and sometimes from county to county. In some areas, the buyer may pay for one and the seller for the other.

We find out from Riverside that typically there is a substantial discount if you are buying the owner’s and lender’s policies from the same company.

4. Is the seller pushing a specific title company?

Dreyer, the Riverside’s attorney is warning to beware if the seller is pushing his title company. You have the right to select the company when you are paying for the property title insurance. If you are using the same company that the seller did years earlier, you run the risk to get the same results.

If you pay for the title insurance, you have the right to select the company. If you’re not paying but want to choose the company, be prepared to share some of the costs.

“More often, searchers don’t use the actual records, but summaries or extracts of those records. A fresh set of eyes could detect the problems and help you to fix them before you buy the property,” says the Riverside attorney.

Be wary if the seller is pushing his title company, Mann says. A title search is meant to find errors before you buy. Use the same company that your seller did years earlier and odds are you’ll get the same results, Mann says. Often, searchers aren’t using actual records but summaries or extracts of those records. A fresh set of eyes (and extracts) could unearth problems, allowing you to fix them before you buy.

5. Whom do I trust?

If you’re getting advice from your seller, your real estate agent and your mortgage lender, experts from Riverside suggest taking the lender’s advice. The lender’s interest is same as the interest of the home-buyer. The lender is guaranteeing a large amount of money based on the assurance that the property you’re using as collateral is really yours. So, the lender’s interest is to get the things done well.

6. How much reassurance do I need?

The Riverside Abstract’s escrow, Jeremy Ehrman suggests checking its financial solvency with ratings some company. Also, you can research the underwriter and the title company online, in order to see the reviews from their past customers and also the reviews from their employees.

In some rare cases, the title insurance agent can issue the policies but pocket the premiums instead of forwarding them to the underwriter. I that case, the consumers will not be covered. For that reason, the Riverside escrow suggests contacting your underwriter directly and asking for a copy of your policy.