What is title insurance?

Title Insurance protects against the risks involved in every real estate transaction. It is an insurance policy that protects the insured against loss, should the condition of the land be other than as insured.

Unlike other types of insurance that offer protection against future possible occurrences, Title Insurance offers protection against past occurrences which could result in a claim at a future date.

Title Insurances provides the insured with "peace of mind" in knowing that you are receiving a good and marketable title to the real estate you are purchasing.

Why do I need title insurance?

When you purchase your home, how can you be sure that there are no problems with the home's title and that the seller really owns the property? Problems with the title can limit your use and enjoyment of the property, as well as bring financial loss. You expect to enjoy certain benefits from ownership... to be able to occupy and use the property as you wish; to be free from debts or obligations not created or agreed to by you; and to be able to freely sell or pledge your property as security for a loan. Title Insurance is designed to cover these rights.

Without an Owner's Title Insurance Policy, you may not be fully protected against errors in the public records, hidden defects not disclosed by the public records, or mistakes made during the examination of the title of your new property. As a result, you may be held fully accountable for any liens, judgements or claims brought against your new property. However, your Owner's Title Policy insures that if such an occasion arises, you will be defended, free of charge against all covered claims and paid up to the amount of the policy to settle valid claims.

What is an owner's title policy?

An Owner's Policy provides assurance that your title company will stand behind you --monetarily and with legal defense if needed -- if a covered title problem arises after you buy your home. The bottom line is that your title company will be there to help pay valid claims and cover the costs of defending an attack on your title.

Sometimes title problems occur that could not be found in the public records or are inadvertently missed in the title search process. To help protect you in these events, it is recommended that you obtain an Owner's Policy of Title Insurance to insure you against most unforeseen problems. It is a one-time fee, paid at closing, and protects you for as long as you or your heirs have an interest in the property.

What is a loan policy?

Lender's Title Insurance, also called a Loan Policy, is usually required by most lenders when they issue you a loan. The Loan Policy is based on the dollar amount of your loan. It only protects the Lender's interests in the property should a problem with the title arise. It does not protect the buyer. The policy amount decreases each year and eventually disappears as the loan is paid off.

What is a title search?

A title search is a thorough review or examination of the public records that pertain to real property ownership and the rights/limitations of it's use. The search period beings with the current owner(s) and extends back in time for a period of 60 years (commonly referred to as the "chain of title"). All documents affecting the subject property are reviewed for accuracy, completeness and proper execution. Similarly, all owners of record during the search are indexed to determine their ownership interests, marital status and legal and mental capacity to enter into a contract to sell/but real property. All conveyances must have been properly conducted and approved by the appropriate governmental departments.

What issues can a title search reveal?

A title search can show any number of title defects, liens, and other encumbrances and restrictions. Among these are unpaid taxes, unsatisfied mortgages, judgements against buyers/sellers and any restrictions or conditions limiting the use of the land.

What issues may a title search NOT reveal?

There are some "hidden hazards" that even the most diligent title search may not reveal. For instance, a previous owner could have incorrectly stated his marital status resulting in a possible claim by his legal spouse. Other hidden hazards include fraud, forgery, defective deeds, mental incompetence, confusion due to similar or identical names, and clerical errors in the City/County land records.

These defects can arise after you have purchased your home and can jeopardize your right to ownership in part or full.

I'm refinancing. Why do I need title insurance?

When you refinance, you are obtaining a new loan, even if you stay with your original lender. Your lender will usually require a new Title Search and Loan Policy to protect their investment in the property. You will not need to purchase a new Owner's Policy -- the one you bought at closing us good for as long as you or your heirs have an interest in the property.

Even if you recently purchased or refinanced your home, there are some problems that could arise with the title. For instance, you might incurred a mechanic's lien from a contractor who claims he/she has not been paid. Or you might have a judgement placed on your house due to unpaid taxes, homeowner dues, or child support. The lender needs reassurance that the title to the property they are financing is clear.

Ask if you qualify for a "refinance" rate, sometimes called a "reissue" rate. These rates are not available in every state, and you might have to meet some criteria to be eligible, so be sure to ask.

I'm buying a new construction. Do I need title insurance?

Construction of a new home raises special title problems for the lender and owner. You may think you are the first owner when constructing a home on a purchased lot. However, there were most likely many prior owners of the unimproved land. A title search will uncover any existing liens and a survey will determine the boundaries of the property being purchased. In addition, a builder may be failed to pay subcontractors and suppliers. This could result in the subcontractor or supplier placing a lien on your property.

Purchasing an Owner's Policy will protect you against these potential problems and pay for any legal fees involved in defending the claim.

What does title insurance cost?

The cost of Title Insurance is variable, and depends mainly on the value of your property. It is important to remember that it is a one time cost, and that coverage remains for as long as you or your heirs have an interest in the property. If you die, coverage automatically continues for the benefit of your heirs.

Does a title insurance policy insure oil mineral and/or gas rights?

No. Title Insurace does not ensure buyer receive rights to oil, minerals and/or gas on or under their property. Only "real property" is insured. This is described in Section A, or the Legal Description of a Title Insurance policy, and is considered to be only the land described and affixed improvements that, by law, constitute real property.

Why are oil, mineral, and gas rights not insuranced?

In a purchase transaction, records relating to a property and it's owners are only searched back as far as 60 years. However, the first active coal mines began in the late 1700s - and more than 350,000 oil and gas wells have been drilled since then. In that time, complete records were rarely kept. When records were maintained, the method for doing so varied from county to county making it extraordinarily difficult to accurately research today. The most reliable way to determine whether a property has been subject to leasing is to contact the Pennsylvania Department of Mining - a time consuming and costly process that still may not provide completely accurate information. For this reason, insurance underwriting guidelines generally require that Oil, Mineral and Gas rights are excepted from coverage.

How common are natural gas wells in Pennsylvania?

According to DEP data, only 48 Active Permitted Natural Gas Wells were in existance in Pennsylvania in July 2008. That number has exploded to an astounding 2,015 as of Janurary 2012.

When is a judgement a "Lien" on Real Property?

A judgement becomes a lien on real property when it is entered into the judgement index. A judgement shall create a lien on real property located in the county, title to which at the time of entry is recorded in the name of the person against whom the judgement is entered.

What is an "In REM Judgement"?

Latin: meaning against "the thing" - your property.

An "in Rem" judgement may also be referred to as a "property specific" judgement.

In Rem judgements need to be paid only if the property affected is the real estate in your transaction. You can determine if it is against your property by readying the judgement or complaint itself.

Examples:

1. Delinquent real estate taxes

2. Water/Sewer/Trash

3. School taxes

4. Municipal liens IF they are for actual work the municipality conducted on the real estate.

5. Mechanics' liens

6. Mortgage foreclosure judgements

7. Liens under the Commercial Real Estate Broker Lien Act

What is an "In Personam" judgement?

Latin: meaning "directed toward a particular person" - your seller or borrower.

In Personam judgements may also be referred to as "General Judgements"

In Personam judgements must be paid when the defendant is the owner of the real property involved in your transaction. You should always assume judgements are held in Personam unless the debtor can prove otherwise.

Examples:

1. Federal Tax Liens

2. Federal & PA Death Taxes

3. Criminal Judgements

4. Support obligations

5. Commonwealth of PA Department of Revenue

6. Commonwealth of PA Income/Employer Withholding Tax

7. Commonwealth of PA Deptartment of Revenue - Realty Transfer Tax liens

8. Municipal liens for fines

9. Creditors/personal injury

10. Confession of Judgement

What are Real Estate Broker Commission/Fees (Section 700)?

If you use a real estate agent to help you in buying your home, the cost of the agent's services can be paid in one of two way. Generally, the seller pays for all agents in a transaction in an amount usually stated as a percentage of the sales price. While this amount will be deducted, along with other seller-paid closing costs, from any amount the seller might otherwise be paid and is usually stated on the HUD-1, this will not be your charge. Increasingly, buyers in some places are engaging their own so-called "Buyer's Broker or Agent." How they are paid and by whom varies from place to place and can be negotiated in many cases. Sellers frequently also pay for such services on behalf of buyers but if a charge is paid by the buyer, it will also be stated on the HUD-1 and added to the amount you'll need to bring to closing.

What are loan fees - direct loan costs (Section 800)?

Most people need to obtain a mortgage loan to pay for their home. There are often fees associated with obtaining a loan sick as the ones listed below. These fees include ones paid directly to the lender or the lender's designated payee. Fees payable to third-party loan originators (typically Mortgage Brokers) are also shown in this section of the HUD-1.

1. Loan Origination Fee- This fee covers the lender's cost of obtaining financing and administration for your loan. The fee is usually calculated as a percentage of the loan amount by can also be in a flat dollar amount. It has become more common for an "application" fee (stated in flat dollar amount) and, possibly, other up-front charges like an "underwriting" fee (also usually stated in flat dollar terms) either to take the place of or be in addition to an origination fee. Each lender and each loan program a lender offers will have different front-end charges.

2. Loan Discount (Sometimes referred to as "points")- This is a one-time fee charged by the lender in order to give you a lower interest rate on your loan. Each point is 1% of the mortgage amount. Points paid upfront can reduce the interest rate you pay on your loan. Whether this is the best option for you in shopping for a mortgage loan depends on whether you have the necessary cash and how long you think you'll stay in the home or keep the mortgage before selling or refinancing -- the longer you intend to stay and keep the financing, the better off you may be paying something upfront and paying a lower interest rate on your loan. In any even, this cost will be collected at closing generally.

3. Appraisal Fees - To approve your loan your lender has to obtain an estimate of what your home is really worth. The appraisal fee covers the cost of getting an estimate of the market value of your home, usually by an independent, certified, licensed appraiser.

4. Credit Report Fee - Mortgage lenders require a credit report to determine whether or not you are eligible (have good enough credit) for a loan, how much they will lend you, and at what interest rate. Credit Reports today often also include a "credit score" which is an indicator of your ability and willingness to repay the loan. The higher your score, the better risk you are.

5. Lender Inspection Fees- If the lender requires certain inspections to take place before closing(particularly where new construction or recent repairs are involved), such inspection fees, payable to the lender or it's designee, will appear in this section of the HUD-1.

6. Mortgage Insurance Application Fee- There are often fees associated with processing an application for mortgage insurance. Some private mortgage insurers waive the application fee. This like of the HUD-1 may be used for other fees when the borrower is seeking an FHA-insured of VA-guaranteed loan.

7. Assumption Fee - If you are taking over the existing mortgage loan on the home, there is often a charge associated with assuming the mortgage, called the assumption fee.

8. Mortgage Broker Fee- This fee covers the costs of services of a mortgage broker if one is engaged by the borrower to help them shop for mortgage financing. Mortgage brokers typically present the borrower's application to a variety of funding sources before helping the borrower make their final selection.

What are the items required by the lender to be paid in advance (Section 900)?

There are certain items the lender may require you to pay at the time of closing or in advance of the actual closing date. These could include:

1. Interest - Lenders usually require payment of loan interest from and including the day of closing through the end of the month of closing. After that, interest is accrued and paid as part of the monthly loan installments.

2. Mortgage Insurance Premium- At the settlement, you may be required to pay your first year's mortgage insurance premium, or a lump sum premium that covers the life of the loan. This fee is payable to a Private Mortgage Insurance Company. If the loan is being federally insured (FHA) or guaranteed (VA), the mortgage insurance or funding fees for those government loan programs would be charged here.

3. Hazard Insurance Premium- Oftentimes lenders require payment of one year's hazard insurance, commonly referred to as homeowner's insurance, against fire, windstorms, and natural hazards. In order to bind coverage, the premium is often paid in advance of closing.

4. Flood Insurance - Depending on the location of your home, flood insurance may be required and payment of the first year's premium must be made in advance of closing.

What are escrows/impounds/reserves (Section 1000)?

Although the lender isn't required to provide an estimate of the reserves they will be collecting, it is important that you be aware of whether the lender will or will not be "escrowing" for taxes, mortgage insurance (if any), hazard and floor insurance. The use of an escrow/impound account to build up the funds needed to pay these items as they become due can often be a good way for borrowers to budget rather than having to pay these large sums out-of-pocket when they come due. Be sure to ask your lender in advance of closing how these items will be paid on a go-forward basis.

What are the title and closing charges (Section 1100)?

These fees cover the administrative costs of a title search, title examination, issuance of the title commitment/binder and final title insurance policy(ies). Also included would be chards for conducting the closing/settlement/escrow. You are free to select the company to conduct your closing/settlement/escrow, and to shop for the best pricing.

1. Settlement/Closing Fee -A fee must be paid to a settlement agent who has prepared documents, calculated figures, and oversees proper execution of closing documents. This fee is often spit between buyer and seller but can be negotiated as part of the sales contract.

2. Abstract of Title, Search, Title Examination, Title Insurance Commitment or Binder- In order to ensure that there are no pre-existing problems with your property, a title insurance professional must perform a title search and produce documentation on the home's title. In some places, one or more of these charges will appear separately on the HUD-1 and in other places they may be included within the title insurance premium. When a mortgage loan is involved, there may also be added charges for special endorsements that will accompany the lender's title policy.

3. Document Preparation -Some settlement agents charge for the cost of preparing legal papers such as the mortgage, deed of trust, note or deed and/or other loan and title documentation. If a lender charges a document preparation fee, it will typically appear in the Loan Fees/Direct Loan Costs of the HUD-1.

4. Notary Fee - Because there are legal documents involved, a licensed notary is required to acknowledge the fact that the proper people signed these official documents in their presence. Notaries often charge a fee for their services.

5. Attorney Fee- Both the homebuyer and the seller might have their own legal representation to prepare and record legal documents. Frequently, however, where an attorney is acting as a settlement agent, there may be only one involved in the closing. Who pays for those services is a matter of contract negotiation but is often handled like fees paid to any other settlement agent/title agent.

6. Title Insurance - There are two kinds of title insurance policies: Loan and Owner's policies. The cost for the Loan Policy is based on the loan amount and the cost for the Owner's Policy is based on the sales price of the home. Who pays these one-time fees at closing varies from state to state. Ask your settlement agent how it is handled in your area. In some circumstances, discounts may be available (suck as a "reissue rate" or "reissue credit") when the property has recently been insured by a title insurer. De sure to ask if you are entitled to any discounts.

What are the recording/government filing fees (Section 1200)?

Buying a home is not only a big investment, it is also a matter of public record. The property information and the loan information are required to be filed at the county courthouse or other local government recording office.

1. Recording Fees - The recording fee is paid to a government body which enters an official record of the change of ownership.

2. Transfer Taxes, Document or Transaction Stamps- These are government charges based on the amount of the mortgage and, often, also on the purchase price. Depending on your location, there could be a city, county or state tax involved, or some combination.

What are other/miscellaneous charges (Section 1300)?

1. Survey Fee - Lenders and title insurers often require a surveyor to conduct a survey of your property to define the property size and boundaries and to see if any part of the building or other improvements are "encroaching" on a neighbor's yard -- or the other way around. They are also looking to see if there are any setback violations or other material matters are are considered problematic.

2. Inspection Fees- When homes are sold an inspection is often recommended and in some cases the contract may even be contingent upon an acceptable inspection report. This fee covers the cost of an inspector to check the dwelling for and structural problems or issues. Frequently, this is a sales contact term imposed by the homebuyer to obtain an accurate assessment of the condition of the property. The work is done prior to closing but the fee is often collected at closing. There are several inspections that a future homeowner might want to request and a lender might require. These could include pest inspections (termites and other wood-destroying organisms), lead paint inspections (for structures built before 1978), roof inspections, water/well certifications, structural or mechanical inspection, or additional specific inspections based on the property type and location.