Title insurance: Ponder protection prior to closing
Title insurance. Just the name has your eyes glazing over, doesn’t it? I feel your pain, but if you are buying a house you can’t avoid it and as with all home buying information: Knowledge Is Power! Can you picture my Super Realtor cape flying out behind me as I type that? Or not.
Title insurance is something that is mentioned on the purchase contract, but not really discussed with buyers until they are at the closing table. I think it’s important that buyers consider this before hand so let’s see if we can get through this with some grace and good humor and as painlessly as possible, and I promise I’ll get to the big question on every buyer’s mind: How much is it?
Buying a home has many steps to the process- some more fun than others- but today, let’s fast forward to the closing table. The future is shining before you. You’ve looked and dreamed and been educated, and the excitement can be palpable. You’ve brought your cashier’s check, and you have a stack of papers to sign. This is not the time to be presented with the idea of Title Insurance. At this point, you don’t want any surprises, do you? Why buyers are presented an option of purchasing title insurance at the closing table is one of life’s minor mysteries, but after today you will join the ranks of the informed buyers. So. What is title insurance and why do I need it?
The short answer is that title insurance is your guarantee that you own the property you are purchasing, free and clear of undisclosed liens, and no one else can claim ownership rights to that property. That wasn’t too painful, was it?
At this point, you may be thinking to yourself: Isn’t that what the title company is supposed to do? Well yes, and no. The title company does complete a search before the closing. They are determining whether a title is “insurable”. They search county records for deeds, and easements, and liens among other things- however- and while this however might be a tiny little however, in this day of foreclosures and bankruptcy, it’s a rather niggling however. What can happen to home owners in the course of owning a home? A short list might include: Divorce, death, title transfers, lawsuits, judgments. Who knows where that title has been and the fact is, humans do make mistakes. Records can be as long and as twisting and tangled as a plate of spaghetti in the old back room at Dominic’s Restaurant. Title insurance protects you from the unknown.
The title company will give you the option, at the closing table, of purchasing insurance then, and they will give you information regarding title insurance, and they will inform you that you have 30 days from closing to purchase it. I don’t know about you, but the first 30 days in a new home, I sure as hell ain’t thinking about title insurance. I’m trying to find the short cuts in and out of the neighborhood, where the cheap gas is, and whether the dining room would look better with Shangri-la Silk or African Market colored walls. The last thing on my mind is title insurance.
Title insurance comes in two varieties: The Loan Policy and the Owner’s Policy. Stay with me here. Briefly, the Loan Policy protects the mortgage lender- in the event of foreclosure the lender will get paid. Purchasers are typically required to purchase a loan policy when applying for a mortgage. The Owner’s Policy is what we are discussing here. It benefits the buyer.
Now we get to the nitty gritty- how much does all this set you back? Generally speaking, right now, for the Dayton Ohio area, check details with your attorney of course, the break down looks like this:
Owner’s Policy:
Loan amount or Liability: $1000- $150,000
Rate: $5.75 per thousand
Loan amount or Liability: $151,000-$250,000
Rate: $4.50 per thousand plus $187.50
Loan amount or Liability: $251,000-$500,000
Rate: $3.50 per thousand plus $437.50
So for a home that costs $100,000, the Owner’s Policy will cost $575.00.
The current Loan Policy rate would look like this:
Loan amount or Liability: $1000- $150,000
Rate: $4.00 per thousand
Loan amount or Liability: $151,000-$250,000
Rate: $3.25 per thousand plus $112.50
Loan amount or Liability: $251,000-$500,000
Rate: $2.50 per thousand plus $300.00
So for a home that costs $100,000, the Loan Policy will cost $400.00.
That means that both policies will cost the purchaser of a $100,000 home, $975.00.
Are you still with me? We are almost done, and there is a bit of good news, and this is why you need to consider all this before the closing table and before you forget. Deep breath and here we go: First of all, unlike most insurance, these are one time fees. And, if a Loan Policy is issued in connection with the same transaction an Owner’s Policy is also being issued, the title company will only charge for the cost of the Owner’s Policy plus a “simultaneous issue fee” of $100.00 for the Loan Policy. Using the $100,000 home as an example, if you purchase both at the closing table or within 30 days, the cost for both the Owner’s Policy and the Loan Policy now becomes $675.00. That tidbit of information just saved the purchaser $300.00. Can you do anything with that?
There you have it- title insurance in a nutshell. Nothing to discuss around the water cooler, but hopefully you are a bit more informed. And if title insurance fascinates you and just can’t get enough, you can always call a title company, your attorney, or a real estate professional- like me (the number is on the About page).
Good info Teri.
I remember being a newbie agent in Dayton and being told buyers shouldn’t worry about buying an owners title policy… bad advice!
Moving from Dayton to Columbus was great, Central Ohio our contract calls for the seller to pay for the owners title policy for the buyer! Buyer pays to protect their lender here only… real estate is so darn local. A couple of builders it is not handled that way and I had clients whose RE attorney told them not to buy the owners policy on a new build. He’s the attorney…
I saw this on Twitter and got nolstalgic.
January 8th, 2008 | #
I have always encouraged it, and particularly to buyers of older homes- more owners increases the chance for something to be amiss. It is a good thing to have.
While researching for this post, I did find out that SW Ohio is the only part of Ohio where the owner’s policy is not dealt with in the purchase contract- I was not aware of that myself. It is rather fascinating how RE contracts and customs and laws can change from one area to another.
January 8th, 2008 | #
Very informative and well written post. May I add one suggestion? Before you hire your title company, ask what kind of title search they will conduct. The big five title insurers do have formal search standards, however, they do not monitor compliance. This means that a consumer of title insurance, paying for either a loan or an owner policy might receive a professional full search and examination OR they might have an untrained clerk run a simple property report. In either case, the price for the policy is the same, but the level of risk is substantially different.
Most of the premium you pay for title insurance goes to the title agent to cover the preventative search and examination phase. They are supposed to look for problems and cure those problems before issuing the policy. The small portion of the premium that goes to the actual title insurer pays for a policy meant to cover errors in the search phase or items that could not be discovered in a reasonable search.
If you unwittingly deal with a title agent who cuts corners and keeps your cash rather than spending it on the hard work product, you have a substandard policy.
We, in the title industry, at the agent level, are trying to get regulators to deal with this problem. In the meantime, it’s buyer beware.
January 8th, 2008 | #
Diane- Thanks for stopping by, and thanks so much for the additional information. I have to agree that finding a good title company is imperative. I’ve not had personal experience with them, but I’ve heard horror stories of substandard title companies and the damage they can do is frightening.
Nice blog, btw. It’s nice to see all aspects of the real estate world represented in the blogiverse, and you pull no punches on your blog- good for you!
January 8th, 2008 | #
Your post is very interesting. I am not buying a house, but I am sure I will. And I have no idea that TITLE INSURANCE even exist. Now I realize that there are less fun steps when you are buying a house.
Realtos must tell us this information. Great post.
March 5th, 2008 | #
Never heard of title insurance in the UK, very interesting reading.
March 9th, 2008 | #
Really helpful post as you can see lot of people had no idea about title insurance.
Thanks for sharing
March 19th, 2008 | #
Really great post, and even I learnt a little more about title insurance:grin:
Love the blog and you have a nice design there too - have bookmarked and will be keeping track.
July 6th, 2008 | #
[...] The DABR says that title insurance is purchased in just under 10% of transactions, and that title claims are increasing, but it hasn’t given us any figures for how much of an increase. Personally, I don’t think it’s necessary in all real estate transactions. I think if your home is historic, has changed title frequently, has a foreclosure in it’s history, title insurance is certainly something to think about. How much is title insurance? What does it do? Is it worth it? You can have your questions about title insurance in the Dayton area, answered here. [...]
July 14th, 2008 | #
Wow… this is new. Does anyone know whether this applies to the Singapore property market?
September 18th, 2008 | #
February 23rd, 2009 | #