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What
is title insurance?
Why
do you need it?
Buying
a new home is one of life's most gratifying experiences.
As you approach the big day of closing, however, all the
details can be a little overwhelming. You might easily
overlook the single most important step in the entire
process -- the purchase of Title Insurance on the wonderful
new home of yours.
Contents of This Page
Historic
Development of Title Insurance
Title Issues
What is a Title?
Do I need Title Insurance?
What can make a Title defective?
But the lender already requires Title Insurance,
won't that protect me?
How much does Title Insurance cost?
When should I look into purchasing Title Insurance?
Should I shop around for the best Title Insurance
deal?
Can my title company handle the closing?
What items are needed at closing?
Tips for smooth closings
Historic
Development of Title Insurance
The need for title insurance arose historically
from the fact that traditional methods of conveying real property
did not provide adequate safety to the parties involved. Until
a century ago, transferring title to real property was handled
primarily by conveyancers, who were responsible for all aspects
of the transaction. The conveyancer conducted a title search
to determine the ownership rights of the seller and any other
rights, interests, liens or encumbrances that might exist
with respect to the property, and, based on its search, provide
a signed abstract (or description) of the status of the title.
Although the conveyancer was generally not a lawyer, that
individual was recognized as an authority on real estate law.
The origin of title insurance is directly traceable to the
limited protection that the work of such a conveyancer provided
to the purchaser of real property.
In 1868, the celebrated case of Watson v. Muirhead (57 Pa.
161) was filed in Pennsylvania. In that case, Muirhead, a
conveyancer, had searched and abstracted a title for Watson,
the purchaser of a parcel of real property. In good faith
and after consulting an attorney, Muirhead chose to ignore
certain recorded judgments and to report the title as good
and unencumbered. On the basis of Muirhead's abstract, Watson
went ahead with the purchase, but was subsequently presented
with, and require to satisfy, the liens that Muirhead had
concluded were not impairments to title. Watson sued Muirhead
to recover his losses, but the Pennsylvania Supreme Court
ruled that there was negligence on the conveyancer's part
and dismissed the case. Watson, an innocent purchaser who
had suffered financial damages because of the encumbrances
on his title, had no recourse.
The decision of Watson v. Muirhead demonstrated clearly that
the existing conveyancing system could not provide total assurance
to purchasers of real property that they would be safe and
secure in their ownership. As a result of that decision, the
Pennsylvania legislature shortly thereafter passed an act
"to provide for the incorporation and regulation of title
insurance companies." The first title company was founded
in Philadelphia in 1876.
This new type of insurance (called "title insurance"),
addressed the concerns raised in Watson v. Muirhead by providing:
(1) responsibility without proof of negligence; (2) financial
protection through a reduction of the risk of insolvency;
and (3) the assumption of risks beyond those disclosed in
the public records (for which the abstractor was not liable).
Since the late 1800s, the title insurance industry has grown
to where it now is an essential component in an overwhelming
majority of real estate transactions in this country. The
services provided by the title insurers may vary somewhat
from one area of the country to the other, reflecting the
different laws, customs and procedures of the various states
and counties throughout the nation. But the essential purpose
of these services is the same ' to assist all of the parties
in real estate transactions by ensuring that the acquisition
or transfer of an interest in real estate can be effected
with a maximum degree of efficiency, security and safety.
Commerce Title is proud to play a leading and innovative role
in this industry.
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Title
Issues
The job of searching the public records to identify existing
rights and interests is not an easy task. The title searcher
or abstracter reviews the public records to find all aspects
of title, which can be seen and recognized. From the title
search, the title examiner produces an opinion of title, from
which the Company will issue its insurance.
In many areas, the title to a property can be traced back
to a royal grant, charter, or the United States government.
In many areas, titles are not traced back that far; instead,
local custom or title insurance company requirements dictate
a shorter search.
There are few titles, if any, that have a perfect history
from their source, or root, to the present day. Each transfer
of ownership is a "link" in what is referred to
as the "chain of title." As each transaction or
link takes place, there is a potential for a problem. Even
if the entire chain of title appears to be in order, the chain
is still subject to interpretation. When searching a title,
what we are trying to determine are the various rights and
interests that make up each link in the chain as it has passed
from one owner to another.
A "title" is composed of three basic elements.
1. Rights and interests that are disclosed in the public records
or by physical inspection of the property, i.e., deeds, mortgages,
leases, etc., parties in possession, utility easements, etc.
2. Rights and interests that are not recorded but exist, i.e.,
limitations imposed by laws and statutes, etc.
3. Rights and interests that are hidden, i.e., forgeries,
secret marriages and unknown heirs.
Every title is made up of many different "rights"
and "interests" that may be owned by different people.
The "owners" of the property own the most valuable
of the property's rights and interests, but other people may
also have rights to the property, such as easements for utilities
or mortgages, etc.
Each title can be compared to sticks in a bundle. The rights
and interests are represented by the sticks. The "owners"
own what we call a "fee simple" title, that is,
they have purchased the most vital and valuable sticks including
rights of possession, use, occupancy, enjoyment, inheritance,
etc. Also, within the bundle are sticks that may be owned
by other parties. These are called encumbrances and may consist
of easements, mortgages, liens, etc.
When a person purchases a parcel of real estate, it is not
only the physical property itself that he or she acquires,
but the sellers rights and interests, "the seller's title,"
in the property. It is essential for the prospective purchaser
to know before the transaction takes place, precisely what
rights or interests the seller can convey. The purchaser also
needs to know who else may have rights or interest in the
property, and about any encumbrances against the property
that may affect the use or enjoyment of the land. The title
search must cover all these rights and interests.
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What
is a Title?
A title is the evidence, of right, that
a person has to the ownership and possession of land. It is
possible that someone other than the owner has a legal right
to the property. If that right can be established, this person
can claim the property outright or make demands on the owner
as to its use.
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Do
I need Title Insurance'
Most definitely! Title insurance is a means
of protecting yourself from financial loss in the event that
problems develop regarding the rights to ownership of your
property. There may be hidden title defects that even the
most careful title search will not reveal. In addition to
protection from financial loss, title insurance pays the cost
of defending against any covered claim.
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What can make
a Title Defective?
Any number of problems that remain undisclosed
after even the most meticulous search of public records can
make a title defective. These hidden "defects" are
dangerous indeed because you may not learn of them for many
months or years. Yet they could force you to spend substantial
sums on a legal defense, and still result in the loss of your
property.
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But
the lender already requires Title Insurance, won't that protect
me?
Not necessarily. There are two types of
Title Insurance. Your lender likely will require that you
purchase a Lender's Policy. This policy only insures that
the financial institution has a valid, enforceable lien on
the property. Most lenders require this type of insurance,
and typically require the borrower to pay for it.
An Owner's Policy on the other hand is designed to protect
you from title defects that existed prior to the issue date
of your policy. Title troubles, such as improper estate proceedings
or pending legal action, could put your equity at serious
risk. If a valid claim is filed, in addition to financial
loss up to the face amount of the policy, your owner's title
policy covers the full cost of any legal defense of your title.
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How much does Title Insurance
cost?
The one-time premium is directly related
to the value of your home. Typically, it is less expensive
than your annual auto insurance. It is a one-time only expense,
paid when you purchase your home. Yet it continues to provide
complete coverage for as long as you or your heirs own the
property.
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When
should I look into purchasing Title Insurance?
Call Commerce Title as soon as you and
the seller sign the earnest money contract. With a brief summary
of the details, our team of title experts will begin a search
of the public records and issue a title commitment. Because
there are a number of steps we must take to make certain that
we know all we can about the title, it is wise to get the
ball rolling as soon as possible.
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Should I shop
around for the best Title Insurance deal?
Some states closely regulate rates. Others
permit open competition, often resulting in significant differences
between title insurers on rates and coverage. Depending where
you live, it pays to investigate your options carefully in
order to obtain the most complete coverage.
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Can my title company
handle the closing?
Yes, Commerce Title will act as a central
clearinghouse for the parties involved -- collecting necessary
documents, insuring adherence to the lender's title instructions,
making arrangements for proper payment and distribution of
funds. We are fully prepared to work with you from the beginning
of your transaction all the way through to conclusion.
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What
items are needed at closing?
You will want to have these items complete
or in hand when you come to the closing (please confirm with
your escrow officer, as practices vary by state):
Buyer
* Buyer's copy of purchase agreement
* Cashier's check(s) to make all payments
* Proof of purchase of insurance for fire, casualty, etc.
* Invoices for any unpaid taxes, utilities or assessments
* Photo identification (passport, driver's license, or state-issued
identification card)
Seller
* Seller's copy of purchase agreement
* Invoices for any unpaid taxes, utilities, assessments,
and latest utilities meter readings
* Receipts for last payment of interest on mortgages
* Bill of Sale of personal property covered by the purchase
agreement
* Any unrecorded instruments that affect the title
* Proof of satisfaction of any mechanics' liens, chattel
mortgages, judgments, or mortgages that were paid prior
to the closing
* Photo identification (passport, driver's license, or state-issued
identification card)
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Tips for Smooth Closings
1.Use full legal names of parties
when preparing contract. Include Realtor Agent name(s) on
the contract.
2. Provide Commerce Title with correct legal description.
Check seller's papers, particularly the Deed and Title Policy
for correct legal description. If legal description is in
'metes and bounds' terminology, please furnish Commerce Title
the complete description when contract order is submitted.
3. If Realtor Agent is aware of any liens or potential title
problems, such as: estate, heirship, probate, bankruptcy,
divorce, child support, judgments, mechanics lien, etc. Commerce
Title needs this information when order is submitted. This
will help cure problems in advance of closing. Since Realtor
agents personally know their clients, Commerce Title may ask
for help in solving some of these problems.
4. Caution buyer that the Good Faith Estimate provided by
the mortgage company at the time of the loan application,
represents only an estimate of closing costs.
5. Commerce Title needs the new mortgage company's name, loan
officer, loan amount, and telephone number. If new loan is
transferred to another lender, please notify Commerce Title
of change in lenders.
6. On new loan transactions, ask buyers to have their insurance
agent call the lender as soon as possible before closing.
The policy must be exactly like the mortgage company requires,
or funding and disbursements may be delayed while corrections
are made.
7. Private Mortgage Insurance is required on many different
types of loans. The fees have changed significantly over the
past several years. Also, lenders requirements vary as to
when it is required. Be sure the lender explains PMI charges
to your buyer at loan application.
ON THE
WAY TO CLOSING
8. Commerce Title will hold earnest money at your request.
After all the parties have signed and dated contract; inform
customers that earnest money will be deposited upon receipt
by Commerce Title.
9. Furnished marital status of seller(s) and purchaser(s)
(married, single, pending divorce, widow/widower, etc.) when
contract is turned in to Commerce Title.
10. If there is a need for Power of Attorney, please submit
it early to Commerce Title for our review as to adequacy of
its content. Approval by the lender may be required. The original
will be needed for recording.
11. Please provide Commerce Title with seller's present mortgage
company, loan number, fax, and phone number. Commerce Title
will order a payoff statement using this information. Generally,
your seller's payment statement/coupons will contain all the
necessary information. If a seller's loan is an FHA loan,
seller will be charged a full month's interest for the month
in which closing occurs.
12. Commerce Title welcomes title orders placed by telephone
or fax. We need the following information:
* Seller's name
* Buyer's name
* Legal description
* Street address
* Sales price
* Loan amount
* Type of Transaction (VA, FHA, Conventional, Assumption,
Owner Carry, Cash, etc.)
* Seller's present mortgage company name, address, and loan
number
* Listing and Selling Agents
Please provide us with a copy of the contract, and the earnest
money check, if applicable. Commerce Title will fax a confirmation
of your order to you as soon as your order is received. If
you do not receive a confirmation, please contact us as soon
as possible.
13. If available, a copy of Seller's Title Policy should be
given to Commerce Title when contract and order are submitted.
This will streamline title work on present contract, reduce
time needed to be ready for closing, and make it eligible
for discount.
14. Arrange for inspections to be completed prior to the closing
date to prevent a closing delay. Arrangements as to whether
the buyer or seller is to pay for the inspections and/or repairs
should be provided for in the contract. All invoices for inspections
and/or repairs need to be delivered to Commerce Title before
closing.
15. The Termite Certificate, required on FHA and VA loans,
should be delivered to Commerce Title with an accompanying
invoice prior to the closing date. Be sure certification is
done on t he proper FHA/VA form, and within the time frame
allowed.
16. When it is necessary to mail closing papers to out of
town parties, please inform Commerce Title as soon as possible.
17. If there is a change of disbursement, regarding holding
money for any reason (especially repairs), this should be
discussed before closing between agents and parties so that
an appropriate escrow agreement can be obtained, and approval
received from the lender if necessary.
18. For any changes in charges, please notify Commerce Title
as soon as possible so we can change closing statements and
avoid delays during closing.
19. There are special assessments in some areas of Douglas
County. Always inform buyer of the assessments. Check with
us if you need information.
20. A Cashier's Check made payable to Commerce Title is required
for amount due at closing. To permit buyer to obtain a Cashier's
Check prior to closing, Commerce Title will fax closing statements
to Realtor Agent showing amount needed. If exact figures are
not available, we will estimate the amount as close as possible.
Buyer may also use the Good Faith estimate amount and write
a personal check for the difference at closing. Wire transferring
instructions are also available.
21. Tax laws require that the closing agent report 1099 information.
Therefore, we will need seller's signatures, seller's social
security number, and seller's forwarding address.
22. On earnest money refund situations, Commerce Title will
require a written release signed by all parties (seller, buyer)
before money will be released to any party. Realtor Agent
should also sign the releases.
23. For your convenience, Commerce Title employs delivery
personnel to pickup closing documents in the Lawrence area.
For assistance on any
closing matter or to answer any question, please call Commerce
Title. You are our client. Quality and professional service
is our goal.
COMMERCE TITLE COMPANY
1420 Wakarusa Dr. Suite 201
Lawrence, Kansas 66049
Phone (785) 841-0505 Fax (785) 841-3396
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