All About Title Insurance

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Title Insurance Agency
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Before you purchased your home, it may have gone through
several ownership changes, and the land on which it stands
went through many more. There may be a weak link at any point
in that chain that could emerge to cause trouble. For example,
someone along the way may have forged a signature in
transferring title. Or there may be unpaid real estate taxes or
other liens. Title insurance covers the insured party for any
claims and legal fees that arise out of such problems.

6430 Troost Ave
Kansas City MO 64131
816-444-4800
816-822-1444 fax
www.dtitleinsurance.com

FAQ's

How much
will your
mortgage
payment be?

It is necessary if you need a mortgage,
because all mortgage lenders require such
protection for an amount equal to the loan. It
lasts until the loan is repaid. As with
mortgage insurance, it protects the lender
but you pay the premium, which is a
single-payment made upfront.

You need Java to see this applet.

Doesn't the Lender Policy Indirectly Protect Me?

No, title policies are indemnity policies, they protect against loss, and
a lender policy would only cover the lender's loss. Of course, the fact
that the insurer issued a policy to the lender indicates that the title has
been searched and nothing amiss has been found, but no search is
100% dependable. That is why an insurance policy is issued.

Does Title Insurance Do Anything For Me?

The required insurance protects the lender up to the amount of the
mortgage, but it doesn’t protect your equity in the property. For that you
need an owner’s title policy for the full value of the home. In many
areas, sellers pay for owner policies as part of their obligation to
deliver good title to the buyer. In other areas, borrowers must buy it as
an add-on to the lender policy. It is advisable to do this because the
additional cost above the cost of the lender policy is relatively small.

When Does Title Insurance Protection Begin and End?

With the exception noted later, title insurance only protects against
losses arising from events that occurred prior to the date of the
policy. Coverage ends on the day the policy is issued and extends
backward in time for an indefinite period. This is in marked
contrast to property or life insurance, which protect against losses
resulting from events that occur after the policy is issued, for a
specified period into the future.

For How Long Is the Property Owner Purchasing Title
Insurance Covered?

Indefinitely. The owner’s protection lasts as long as the owner or any
heirs have an interest in or any obligation with regard to the property.
When they sell, however, the lender will require the purchaser to
obtain a new policy. That protects the lender against any liens or
other claims against the property that may have arisen since the date
of the previous policy.

For example, if the contractor you failed to pay for remodeling your
kitchen places a lien on your home, you are not protected by your title
policy; the lien was placed after the date of the policy. You will
probably be required to get the lien removed before you can sell the
property. But in the event the lien hasn’t been removed and a search
has failed to uncover it, the new lender will be protected by a new
policy.

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Will Title Insurance Protect Me Against False Claims That
Arose After I Purchased the Property?

The standard policy does not, which is a weakness. Many events
beyond your control can reduce the value of your house after you buy
it. Identity theft can result in a new mortgage you know nothing about.
A neighbor could build on your land without your knowledge, thereby
adversely possessing and possibly eventually taking your land. Or
you may suddenly be told that you must correct a zoning violation of
the previous owner.

To deal with these issues, a new policy with expanded coverage has
been developed. I am told it is virtually standard in California and is
available in many other states, perhaps at a small price increase. It
is usually referred to as the ALTA Homeowner’s Policy.

Does Title Insurance Coverage Rise With Increases in the
Value of My Property?

No, but coverage under the ALTA policy referred to above increases
by 10% a year for the first 5 years after issuance, to 150% of the
initial amount. You can buy additional coverage as a rider to the
policy.

Why Do I Need to Purchase a New Policy When I Refinance?

You don’t need a new owner’s policy, but the lender will require you to
purchase a new lender policy. Even if you refinance with the same
lender, the existing lender’s policy terminates when you pay off the
mortgage. Furthermore, the lender is concerned about title issues
that may have arisen since you purchased the property, such as the
lien mentioned in an earlier question. A new title search will uncover
the lien, and you will have to pay it off as a condition for the refinance.

Insurers generally offer discounts on policies taken out within short
periods after the preceding policy. In some cases, discounts are
available as far out as 6 years from the date of the previous policy.
Ask for it, it may not be offered if you don't.

Does the Fact That Title Insurance Companies Pay Out Very
Little in Claims Indicate That it Is Overpriced?

No, it may be overpriced, but not for that reason. Because title
insurance protects against what may have happened in the past,
most of the expense incurred by title companies or their agents is in
loss reduction. They look to reduce losses by finding and fixing
defects before the policy is issued, in much the same way as firms
providing elevator or boiler insurance. These types of insurance are
very different from life, property or mortgage insurance, which protect
against losses from future events over which the insurers have no
control.

Are Title Insurance Premiums Fair to Low-Income
Borrowers?

Probably they are more than fair. Most title insurance costs arise in
preventing loss rather than paying claims, and prevention costs are
not much different for a small policy than for a large one. Despite
this, premiums are scaled to the amount of the mortgage or the value
of the property, which suggests that smaller policies may be under-
priced and larger policies overpriced.

Does Title Insurance Guarantee Me That I Will Be Able to
Sell My Property If An Unforeseen Claim Arises?

No. Title insurance does not prevent loss of marketability due to a
title claim, any more than fire insurance prevents fire. If a claim
arises, you probably won’t be able to sell your property until the
claim is settled by the title insurer. The interest of the owner and the
insurer may clash in such cases. The owner usually wants
settlement immediately, whereas the insurer wants to minimize the
cost of settlement, which may require time-consuming negotiations
with the claimant.

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Why Are There Such Large Variations in the Cost of Title
Insurance in Different Parts of the Country?

One major reason is that the services covered by the title insurance
premium vary in different parts of the country. In some areas, the
premium covers not only protection against loss but also the costs
of search and examination, as well as closing services. In other
areas, the premium covers protection only, and borrowers pay for the
other related services separately.

To complicate it further, in some states the charges for title-related
services are paid to title insurance companies, which perform the
functions but charge separately for them. In other states, borrowers
may pay attorneys or independent companies called abstractors or
escrow companies.

Of course, what matters to the borrower is the sum total of all title-
related charges. These also differ from one area to another in
response to a variety of factors. The 50 states have 50 different
regulatory regimes, which affect charges. So do local costs,
competition in local markets, and other factors. This is a largely
unstudied segment of the economy that would make a nice PhD
dissertation for a student in economics!

If a Borrower Does Shop For Title Insurance, Would it Pay?

Perhaps. It is difficult to generalize because market conditions vary
state by state, and sometimes within states.

I would certainly shop in states that do not regulate title insurance
rates: Alabama, District of Columbia, Georgia, Hawaii, Illinois,
Indiana, Massachusetts, Oklahoma, and West Virginia.

You would be wasting your time shopping in Texas and New Mexico
because these state set the prices for all carriers. Florida also sets
title insurance premiums but not other title-related charges, which
can vary.

In the remaining states, the situation is murky and it may or may not
pay to shop. Insurance premiums are the same for all carriers in
“rating bureau states”: Pennsylvania, New York, New Jersey, Ohio
and Delaware. These states authorize title insurers to file for
approval of a single rate schedule for all carriers through a
cooperative entity. Yet in some there may be flexibility in title-related
charges. More promising are “file and use” states – all those not
mentioned above -- which permit premiums to vary between
insurers.

It is a good idea to ask an informed but disinterested local whether it
pays to shop in the area where the property is located. Just keep in
mind that those likely to be the best informed are also likely to have
an interest in directing your business in the direction that is most
advantageous to them.

Does a Borrower Have the Right to Purchase Title
Insurance on Her Own?

Yes, although few exercise it. Most leave it up to one of the
professionals with whom they deal – real estate agent, lender or
attorney – to select the carrier. This means that competition among
title insurers is largely directed toward these professionals who can
direct business rather than toward borrowers.

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