by Leslie Larson
There are so many elements associated with purchasing or refinancing a home: appraisal, survey, taxes, assessments, home owner's insurance, per diem interest, escrows, credits, payoffs, commissions, lender's fees, attorney's fees&it is enough to make anyone's head spin! And then there's Title Insurance . . .
What is Title Insurance?
Title Insurance is unlike any other insurance because it insures your lender and you, the buyer, against PAST events rather than future events. It protects against hidden title problems that may interfere with your ownership and enjoyment of the property.
Your title agency conducts a search of public land records to ensure that no one else has a right or claim to your property, because a lien against a prior owner attaches to your home and becomes your problem if not addressed prior to closing. Your Owner's Title Insurance Policy protects you - the buyer - against anything that may have occurred that limits or changes your ownership rights up to the time of your closing for as long as you own your property.
Sometimes, in spite of all the expertise and dedication that go into a title search and examination, hidden problems can emerge after closing, resulting in unpleasant and costly surprises. Some examples of these problems are:
-- A forged signature on the deed, which could mean no transfer of ownership to you
-- An unknown heir of a previous owner who is claiming ownership of the property
-- An unredeemed tax sale certificate can give another person the right to foreclose on your property
-- Mistakes in the public records
Title insurance offers financial protection against these and other covered title hazards. The title insurer will pay for defending against an attack on your title as insured, and will either perfect the title or pay valid claims. Besides guaranteeing you that you own "what you think you own", title searches also inform you of any easements or restrictions, and define the boundaries of your property.
Why do I need Title Insurance when I refinance?
All Mortgage Lenders require a title insurance policy for refinance and purchase transactions. Their Loan Title Insurance Policy insures them that they are in first lien position. The Owner's (also called Fee) Title Insurance Policy you received when you bought your home insures you against past events, and protects you up to the date you moved into your home. It does not insure you against your own actions. A Lender needs to know that since you have been in the home, nothing has happened that would jeopardize their first lien position. You are entitled to a reduced refinance premium rate for the title insurance for a refinance transaction.
Who orders and pays for title insurance, and how much is it?
In New Jersey, it is the purchaser (borrower in the case of a refinance) who pays the one time premium at closing. Your Owner's Policy continues to provide you complete coverage for as long as you own the property. The premium is based on the purchase price, or in the case of a refinance, the amount of the loan. The refinance rate is typically about one half of the basic rate you paid when you bought your home. Your title company can help you calculate premiums, and many offer online calculators on their websites.
Often, your lender, realtor or attorney will recommend a title insurance agency, or order title services for you. You are paying for title insurance, and you are directly impacted by the level of service your title agency provides. It is therefore in your best interest to select a competent, well established title agency.
You are participating in one of the most significant financial transactions you'll ever be involved in: purchasing or refinancing a home. This is not something you do every day - so do your research, and ask plenty of questions!