SS16: Understanding Title Policies and Title Insurance

SS16: Understanding Title Policies and Title Insurance

Charles explains title policies and how title insurance works.

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Talking Points:

  • The first title company was formed in 1853 in Pennsylvania
  • Title insurance is covering past issues; not future issues – liability, and property insurance are all going forward
    • It is paid one-time and covers you for as long as you hold an interest in the title
    • The process for issuing a policy is reviewing real estate records to determine who the true owner of the property is; find any liens or encumbrances
  • How does it work?
    • Title insurance “is an insurance policy that covers the loss of ownership in a property due to legal defects?” What are those defects?
      • Undisclosed heirs
      • Illegal Deeds
      • Forgery – fraud
      • Lack of authority of the person signing the deed
      • Errors in public records
      • Liens and encumbrances that have not been properly removed
      • Unknown easements
      • Survey Issues
    • Title search – what do they check
      • Legal descriptions
      • Building renovations – something was done in the past that was not permitted or not correctly permitted
      • Zoning changes –
      • Multiple owners – verify ownership is accurate
      • Deed, mortgage, easements
    • What is the process to insure a property’s title is clear?
      • Title insurance is ordered and the record search occurs
      • Title examination – title insurance agency starts the review by analyzing the documents of record and evaluating them and their impact on the title of the property
      • Binder or commitment is issued – The title officer issues a title commitment on behalf of the title insurer – the commitment details; the amount of insurance, insured parties, requirements to be met for the policy to be issued, and any exceptions
      • Clearing any “clouds” to the title – a cloud on a title is any irregularity in the chain of title (ownership) of the property. For example, in an open judgment on the property; the title officer would contact all parties involved to get the judgment paid – thus clearing the title
      • Closing and payment – the buyer pays the one-time premium at closing
      • After the closing – the title agency issues the policy on behalf of the title insurer
    • What does title insurance cover?
      • Unknown title defects
      • Unrecorded liens – not properly recorded liens
      • Encroachment issues
      • Legal description mistakes – issues with survey vs. legal description (metes and bounds matches the survey)
      • Errors in public records
    • What to look for
      • Schedule A
        • verify title is vested in the same exact same entity of the seller in the contract
        • confirm legal and physical addresses match
        • confirm the date of the title report
        • it will tell you what type of policy it is; a lender policy or an owner policy – who it protects
        • A lender policy does not cover the buyer
        • confirm policy amount – purchase price or loan amount
      • Legal description
        • An attorney will/should confirm metes and bounds description in the vesting deed matches the legal description in Schedule A of the title report
      • Schedule B
        • Confirm liens and mortgages reported against the property – Review existing mortgages if any – who the lenders are and the amount borrowed
      • Municipal searches
      • Contract protections – your attorney should handle this
        • Makes sure you have a reasonable amount of time in the contract to provide objections to the title to the seller
        • If there are any issues – make sure the seller is taking care of it

Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo. And today we’re going to be discussing title policies and title insurance. The first whole company was formed in 1853 in Pennsylvania. And title insurance is covering past issues, not future issues. So when you’re purchasing property insurance, that’s covering liability and future possible damage to your property with title insurance, your PR you’re purchasing it to protect you against past issues with the title. It is paid one time and covers you for as long as you hold an interest in the title. The process for issuing a policy is reviewing real estate records to determine who the true owner of the property is, and then find any liens or encumbrances. So how does it work? Well, title insurance is insurance policy that covers the loss of ownership in property due to legal defects. What are those legal defects? They could be undisclosed, heirs, illegal deeds, forgery, or fraud, lack of authority of the person signing the deed errors in public records, liens and encumbrances that have not been properly removed, unknown easements or survey issues.

Charles:
There’s going to be a title search that’s performed. What they’re checking in a title search is legal descriptions, building renovations, something done in the past that, uh, was not permanent or not correctly. Permanent zoning changes. Multiple owners. It’s going to verify ownership is accurate. It’s going to verify deed mortgage and easements. So what is the process to ensure a property’s title is cleared? Well, first off title insurance is ordered and the record search occurs, then title examination happens. Where is the title? Insurance agency starts to review by analyzing the documents of record and evaluating them and their impact on the title of the property. Then the binder or commitment is issued. The title officer issues, a title commitment on behalf of the title insurer and the commitment details, the amount of insurance, the insured parties requirements to be met for the policy to be issued and any exceptions, the title is cleared of any clouds.

Charles:
So a cloud on title is an irregularity in the chain of the title, the ownership chain, for example, an open judgment on the property. The title officer would contact all parties involved to get the judgment paid, thus clearing the title. Next, the closing and payment occurs. The buyer pays the one time premium at closing. After the closing, the title agency issues a policy on behalf of the title insurer. So what does title insurance actually cover unknown title defects, unrecorded liens, not properly recorded liens, encroachment issues, legal description, mistakes issues with survey versus legal description. So metes and bounds matches the survey errors and public records. Now what to look for. So there’s a couple different sections of the title policy schedule a verifies. The title is vested in the same exact entity of the seller in the contract. It confirms legal and physical addresses match.

Charles:
It confirms date of the title report. It will tell you what type of policy it is a lender policy or an owner policy. So it tells you who who’s it protecting a lender policy does not cover the buyer. And the lender policy would be for the loan amount. Only it’s going to be with a owner’s policy. It’s going to be for the total amount of the purchase price legal description. Now the legal description is also in the central a and the attorney will confirm that the meets and bounds description in the vesting deed matches the legal description in the schedule, a of the total report. Then there’s your schedule B it confirms liens and mortgages reported against the property and reviews existing more judges, if any, who the lenders are and the amount borrowed it’s going to do, municipal searches, it has contract protections. Your terrain should handle this. Uh, this is part of it where it makes sure that you have reasonable amount of time in the contract to provide objections to the title of the seller. And if there are any issues, make sure the seller is taken care of it. So I hope you enjoyed. Please remember to rate review, subscribe, submit comments, and potential show topics at global investors, podcast.com. Look forward to two more episodes next week. See you then

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