A title insurance policy is an insured statement about ownership of "interest" in a particular piece of property. The policy insures the owner or party holding an interest in the property against loss caused by encumbrances or defects in title.
A preliminary commitment for title insurance is the first stage in the insuring process and is issued only after a thorough search of the public records has been performed. It reveals the conditions of the record title, including any monetary obligations against the property, easements, covenants, conditions and restrictions and any otehr matters tha affect the right ownership, possession and use of the property.
The second and final stage of the insuring process occurs when the conveying document or security instrument (deed, contract deed of tust mortgage or assignment) is executed and recorded in public records, at which time the final title insurance policy is issued.
You need title insurance because any house, no matter how new or apparently secure, is built on land as old as the earth itself. Undoubtedly, this land has had many previous owners. Claims against any one of these persons can be filed against the property and against you as the present owner. Such hazards as fraud, missing heirs, old liens and many others can, and often do, arise like ghosts from the past.
Title insurance protects you against claims and title frauds. It makes your home safely yours. Your title insurance policy is your shield of protection and will defend your ownership against loss. You pay one premium only -- your protection and peace of mind last as long as you and your heirs remain in ownership.
The title insurance premium is determined by the amount and type of coverage to be provided. Unlike other types of insurance, the premium for title insurance is paid only once and coverage lasts as long as the insured hold an interest in the property.
Customarily, the seller pays for the title insurance premium that protects the buyers title to the property. However, the buyer and seller may negotiate who will bear the cost.
If the buyer is obtaining a loan to purchase the property, the lending institution will usually require a title insurance policy to protect their collateral interest in the property. The buyer is responsible to pay for hte lender's title policy as one of the costs of borrowing the money, unless the seller has agreed to pay that portion of the buyer's closing costs.
Title insurance lasts as long as the insured has an interest in the property. For the buyer, the policy is in effect for as long as the buyer or his/her heirs own the property. For the lender, the policy is in effect until the loan is paid in full.
Owners policies are issued to buyers of real estate when they have the title to the property conveyed to them by a deed.
A purchaser's policy is issued to the purchaser of real estate when purchasing the property by making payments on a real estate contract. The purchaser's policy differs from an owner's policy because the purchase on a Real Estate Contract does not receive a deed to the property until final payment is made on the contract.
A lender's policy is issued to the lender to protect their interest in the property secured by a deed of trust or a mortgage. Most lenders usually require a Lender's Extended Coverage Policy, which provides additional protection against risk.
An Owner's Extended Coverage Policy provides the same coverage as an Owner's Policy and also provides additional risk protection to cover losses such as questions of survey, such as lot size, location of boundaries and easements, unrecorded leins for labor or materials, parties in possession of the property not disclosed by public records and breach of covenants, conditions and restrictions.
There's an additional premium for an extended coverage policy to cover the additional risks. A survey, commonly called an "ALTA" survey may be required to issue an "Owner's Extended Coverage Policy." Due to the additional costs of the premium and survey, careful consideration should be given to specifics of the property and the buyer's intended use of the property before Owner's Extended Coverage is ordered.
An escrow is an arrangement in which a disinterested or neutral thrid party, called an escrow closer, holds legal documents and funds on behalf of a buyer and seller, and distributes them according to the buyer's and seller's instructions.
People buying and selling real estate often open an escrow for their protection and convenience. The buyer can instruct the escrow closer to disburse the purchase price only upon the satisfaction or completion of certain prerequisites and conditions. The seller can instruct the escrow closer to retain possession of the deed to the buyer until the seller's requirements, including receipt of the purchase price, are met. Both rely on the escrow closer to carry out faithfully their mutually consistent instructions relating to the transaction and to advise them if any of their instructions are not mutually consistent or cannot be carried out.
An escrow is convenient for the buyer and seller because both can move forward separately, but simultaneously in providing inspections, reports, loan commitments and funds, deed, and many othe ritems, using the escrow closer as the central contact point. If the instructions from all parties to an escrow are clearly drafted, fully detailed and mutually consistent, the escrow closer can take many actions on their behalf without further consultations. This saves much time and facilitates the closing of the transaction.
An escrow closer must remain completely impartail throughout the entire escrow process. He or she will normally adopt a courteous manner when dealing with parties to the escrow, keeping conversation to the matters at hand in the escrow. This formal behavior is meant for the benefit of all concerned, since the escrow closer must follow the instructions of both parties without bias.
Escrow instructions are written documents, which direct the escrow closer in the specific steps to completed, so the escrow can be closed.
Typical instructions would include the following:
- The method by which the escrow closer is to receive and hold the purchase price to be paid by the buyer.
- The conditions under which a lapse of time or breach of purchase contract provision will terminate the escrow without a closing.
- Instructions as to the pro-ration of insurance and taxes. The instruction and authorization to the escrow holder to disburse funds for recording fees, title insurance policy, real estate commissions, and any other closing costs incurred through escrow.
- Instructions to the escrow closer can only follow the instructions as stated, and may not exceed them, it is extremely important that the instructions be stated clearly and be complete in details.
Here are the tasks typically performed by each party in the escrow process:
- Deposits the executed deed to the buyer with the escrow closer.
- Deposits evidence of pest inspection and any required repair work.
- Deposits other required documents such as tax receipts, addresses of mortgage holders, insurance policies, equipment warranties or home warranties.
- The Lender (if applicable):
- Deposits the proceeds of the purchaser's loan.
- Directs the escrow closer on the conditions under which the loan funds may be used.
The Escrow Closer:
- Opens the order for title insurance.
- Obtains approvals from the buyer on title insurance report, pest and other inspections.
- Receives funds from the buyer and/or any lender. Prorates insurance, taxes, rents, etc...
- Disburses funds for title insurance, recordation fees, real estate commissions, lien clearance, etc...
- Prepares a final statement for each party, indicating amounts to be disbursed for services and any further amounts necessary to close escrow.
- Records deed and loan documents, delivers deed to the buyer, loan documents to the lender and funds to the seller, closing the escrow.
- Once all the terms and conditions for the instructions of both parties have been fulfilled, and all closing conditions satisfied, the escrow is closed and the same and accurate transfer of property and money has been accomplished.
The method of dividing the charges for the services performed through escrow or as a result of escrow varies from place to place. The fees and service charges to be divided might include, for example, the title insurance premium, escrow fee, any transfer taxes, recordation fees, and cost in connection with any loan being obtained. Unless there is some special agreement between the buyer and seller as to how these charges are to be paid, local custom will generally be followed in drafting the instructions to the escrow closer as to how they are to be divided.
The examples given on this page were designed to acquaint you with the escrow process and are based on relatively simple escrow. Every escrow is unique, and most are more complex than explained here. If you have any questions, please feel free to contact us at 509.248.5801.