A one-time fee for a peace of mind.
A one-time fee for a peace of mind.
Title insurance offers inexpensive protection to both owners & lenders.
Suppose you learned about title insurance, which pays out only about $7 for every $100 collected in premiums. Would you consider that to be an over-priced rip-off insurance scam?
Since most insurance companies pay out in claims far higher percentages of premiums collected, at first glance it appears title insurers have found the perfect way to earn big profits. But before you rush to go into the title insurance business, you should be aware title insurers spend most of their premium dollars researching titles and preventing losses from occurring.
HOW TITLE INSURANCE WORKS:
A forged signature on a deed. A deed delivered after the grantor’s death. A missing heir who unexpectedly appears. A deed signed by a minor or person of unsound mind. Mistakes in recording title documents. A defective foreclosure. Errors in indexing and copying. Liens for unpaid property taxes, income taxes and judgments.
These are the leading causes of title insurance claims. To protect real estate buyers and their mortgage lenders, two types of “peace of mind” title insurance are available.
One, a lender’s title insurance policy. If you are using a mortgage lender, they will typically require this coverage as a condition of writing their loan. This provides protection to cover the lender’s interest in the property.
Second, an owner’s title policy protects the homeowner from possible title issues that arise after a purchase. It protects the owner’s investment for as long as they own the property.
THE NUMBER-ONE CAUSE OF TITLE LOSSES:
But even the world’s greatest title searcher can’t prevent most causes of title losses. The biggest cause of title losses today is forged signatures, and few examiners can detect forged signatures on recorded documents.
Although signatures must be witnessed by a notary public before the document can be recorded, such acknowledgement is not a guarantee the individual signing is the authorized person. For example, divorced husbands have been known to ask their girlfriends to sign their ex-wife’s name to a deed when the family home is sold without the ex-wife’s approval.
In addition to forged signatures on deeds, it is not uncommon to find forged mortgage satisfactions and deeds of reconveyance which clear a home loan from the title. How is this done? Dishonest property owners have forged and recorded authentic-looking mortgage satisfactions or deeds of reconveyance shortly before selling the home, making it appear the property is owned free and clear.
When the home is sold, the dishonest seller pockets the sales proceeds and leaves town. Months later, the new homeowner receives threatening letters for overdue payments from the seller’s lender, whose mortgage was never paid off. Who pays? The title insurer.
LENDER’S TITLE POLICIES DON’T PROTECT PROPERTY OWNERS:
Most mortgage lenders insist on receiving a lender’s title insurance policy. But it only protects the lender up to the loan limit.
The property owner does not benefit from a lender’s title policy if a title loss occurs. However, for a slight additional premium, the property owner can obtain an owner’s title policy to protect the owner’s equity from an insured title loss.
To illustrate, suppose you bought a $100,000 home with a $20,000 cash down payment and an $80,000 mortgage. A year later, when the loan balance has declined to $79,000 the seller’s ex-wife proves her signature on your deed was forged by her ex-husband, who now lives off the sales proceeds in Tahiti with his new wife. The title insurer will pay the lender the $79,000 loan balance. If you have an owner’s title policy you will receive your $21,000 equity up to the $100,000 policy limit. However, if you did not obtain an owner’s title policy you will receive nothing.
Lender’s title policies remain effective as long as the mortgage is secured by the property. But owner’s title policies insure the owner’s equity, up to the policy limit, as long as the owner or heirs own the property.