Table of Contents
Introduction
What is Title Insurance?
How is Title Insurance Different From Homeowner's Insurance?
Save Money By Comparing Rates
Discounts
Choice of Title Insurer
Who Does Title Insurance Protect?
What Does Title Insurance Cover?
Endorsement Options
Who Should Purchase Title Insurance?
How Much Title Insurance Will I Need?
Who Pays the Premium For the Title Policy?
How is the Premium Determined and When is it Paid?
What is Escrow?
Terms for Title Insurance
Important Tips
Final Thoughts
Other Resources
The decision to purchase a home (or other real property) is probably the largest and most important financial decision you will make. You and your lender will want to make sure that title to the property is indeed yours and that no one will have liens, claims, or encumbrances on your property. Title insurance guarantees against losses from any defects in title that may exist in the public records at the time you purchase that property, and certain other risks described in the title insurance policy. Possible title defects include:
Before issuing a title insurance policy, title companies check for defects in your title by examining public records including deeds, mortgages, wills, divorce decrees, court judgments, tax records, liens, encumbrances, and maps. The title search determines who owns the property, what outstanding debts are against it, and the condition of the title. Title companies also handle property closings and hold earnest money in a trust account, also known as an escrow account, until the purchase is complete.
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What is Title Insurance?
Title insurance is a contractual obligation that protects against losses that occur when title to a property is not free and clear of defects (e.g. liens, encumbrances and defects that were unknown when the title policy was issued). The terms of the policy define what risks are covered and what risks are excluded from coverage. The title insurer will reimburse you for losses that are covered, up to the face amount of the policy, and any related legal expenses. This protection is effective as of the issue date of the policy and covers defects arising prior to your ownership. Title companies issue policies on all types of real and personal property. Two types of title insurance policies for real property are common: a lender's policy and an owner's policy. (See Terms for Title Insurance).
How is Title Insurance Different from Homeowner's Insurance?
Title insurance protects against losses due to defects in title. Before issuing a title insurance policy, title companies search and examine public records and, in certain circumstances, survey the property to identify liens, claims or encumbrances on the property, and alert you to possible title defects. The premium cost is a one-time fee payable at the time of escrow closing. In contrast, homeowner's insurance insures your house and contents and may provide coverage for losses due to fire or lightning, theft, vandalism, and personal liability claims against the policyholder. Homeowner's premiums are often billed monthly, quarterly or annually and installment payment options are often available.
Save Money by Comparing Rates
Under California law, every title insurer, underwritten title company (agent for one or more title insurance companies), and controlled escrow company must file its schedule of rates, forms, and rate modifications with the Insurance Commissioner at least 30 days before the rates become effective. Since each company's loss experience and expenses differ, the rates will differ as well, so you can save money by comparing rates.
You can compare rates on nearly 100 Title insurance companies in California via a Web site like http://www.clta.titlewizard.com, which utilizes a software-generated system to deliver up-to-date Title rates. Sellers, home buyers, and homeowners looking to refinance their homes will be able to search by zip code and other factors to find the most competitive provider in their area.
Be sure that any title company you select meets your standards and those of your lender. Ultimately, the choice of which title insurance company to select is yours, so be sure to contact more than one title insurer or underwritten title company to compare costs and services. Check to see if you qualify for any discounts.
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Discounts
Title insurance companies may offer discounts for title insurance and escrow, such as for first-time buyers, senior citizens, certain professions, a "short-term rate" for a property that has been resold within the last five years, and a subdivision bulk rate for homes being purchased in a new subdivision. Title companies may also offer a discount when both a lender's policy and an owner's policy are purchased concurrently from the same company. Not all companies offer all discounts. Discounts generally range from 5% to 30%. The availability of discounts, the amount of the discounts and the applicability of the discounts may vary by company. Be sure to ask the title or escrow officer what discounts are available. (See Terms for Title Insurance for Title Discount Definitions).
Choice of Title Insurer
The choice of which title insurer to use belongs to you. Federal law, the Real Estate Settlement Procedures Act (RESPA) of 1974 (Public Law 93-533), prohibits the seller from requiring you to purchase title insurance from any particular company.
Please visit the U.S. Department of Housing and Urban Development (HUD) Internet site for additional information on RESPA and title insurance.
Who Does Title Insurance Protect?
Title insurance protects you and your lender if someone challenges the title to your property. This may be in the form of an alleged title defect, which was unknown to you at the time you purchased the property, but came to light at some future date during your ownership of the property. A title insurance policy contains provisions for the payment of losses which result from a covered claim. The title insurance policy also covers legal fees in defense of a claim against your property. Coverage can benefit the homeowner or the bank or mortgage company (lender).
What Does Title Insurance Cover?
Two types of title insurance policies are available to owners of real property in California: California Land Title Association (CLTA) standard coverage policies and American Land Title Association (ALTA) policies.
A CLTA policy insures primarily against defects in title which are discoverable through an examination of the public record. This includes defects in title or recorded liens or encumbrances, such as unpaid taxes or assessments, and defects due to lack of access to an open street. A CLTA policy also covers a limited number of risks that are not discoverable through a search of the public records.
The ALTA policy provides greater coverage than the CLTA policy. Generally, the ALTA policy provides the same coverage as the CLTA policy, but also insures against defects, liens, encumbrances, easements, and encroachments and conflicts in boundary lines that are not reflected in the public records. Since an ALTA policy covers many "off-record" defects in title, the insurer will typically survey the property to be insured.
Since title insurance is required by your lender, the lender will specify the type of policy required.
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Endorsement Options
You may also purchase, at an additional cost, optional endorsements to cover risks that are not included in the standard CLTA or ALTA title insurance policies. Endorsements are available to provide insurance against environmental protection liens, enforcement of covenants, conditions and restrictions, damage due to water and mineral development, and accuracy of boundaries. Be sure to discuss available optional endorsements with your title insurer or escrow officer.
Who Should Purchase Title Insurance?
Lenders require title insurance as a condition for your loan.Two types of policies are available: an owner's policy and a lender's policy. A lender's policy insures that the lender's security interest in the property has priority over claims that others may have in your property. A lender's policy does not protect you. Similarly, the prior owner's policy does not protect you. If you want to protect yourself from claims by others against your new home, you will need an owner's policy. An owner's policy insures the buyer for as long as he or she owns the property. This protection is limited to the value of the property. It is usually less expensive to purchase a lender's policy and owner's policy at the same time from the same title insurer. Contact your title insurer for additional information.
How Much Title Insurance Will I Need?
The homebuyer should insure the full purchase price of the property; the lender only requires title insurance to cover the amount of your loan.
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Who Pays the Premium for the Title Policy?
In California, settlement practices vary from locality to locality. The party that pays the title premium is a matter of local custom and practice and not set by law. Depending upon the region, the premium for a title insurance policy can be paid by the buyer or the seller or split between both parties. In Southern California, the seller customarily pays the premium for title insurance. In Northern California, the buyer customarily pays the premium for title insurance, or occasionally the premium is split between buyer and seller. In almost every county, the buyer pays the lender's policy premium. The parties are free to negotiate a different allocation of fees. Your escrow officer can advise you as to who normally pays the premium in your area.
How is the Premium Determined and When is it Paid?
Title insurance premiums are based on the dollar amount of coverage provided. Every title insurance company is required to file its schedule of rates, forms, and rate modifications with the Insurance Commissioner at least 30 days before the rates can be used. These filings are available for public viewing in CDI's public viewing rooms in San Francisco and Los Angeles, with prior arrangements.
Premiums are paid once at the close of escrow. There are no continuing premiums like other types of insurance.
What is Escrow?
Escrow is a service which provides the buyer and seller with protection in the handling of funds and documents in the property transaction. Escrow enables the buyer and seller to transact business with each other through a neutral party. The "escrow holder" typically receives purchase funds from the buyer for deposit in an escrow account, prepares the deed or other documents, prorates taxes, interest, and insurance according to the escrow instructions, secures release of any contingencies imposed in the escrow, records deeds as instructed, requests issuance of the title insurance policy, prepares final accounting statements for the parties, disburses funds as authorized by the escrow instructions, and closes escrow when all of the escrow instructions of buyer and seller have been carried out.
The escrow process is handled differently in Northern and Southern California. In Northern California, title insurance companies tend to handle all title and escrow services in the same transaction. In Southern California, the title and escrow transactions are separate with escrow being provided by banks, escrow companies, or title companies. Practices will vary from county to county, so be sure you understand the dynamics of your individual transaction. (See Terms of Title Insurance for a description of Escrow Sale or Loan Fees).
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Terms for Title Insurance
Escrow Sale Fee
Escrow sales fee is the fee paid for the escrow process in a home purchase. It is not applicable to refinancing a home.
Escrow Loan Fee
It is a fee tied to the loan fee for a sale or purchase of a home. Some escrow companies require this fee. For a refinance, it is the fee paid for the escrow of a refinance transaction.
Title Homeowner's Fee
It is a fee paid for the owner's title insurance policy that protects the buyer of the home; not applicable in a refinance.
Title Lenders Fee
This is the fee charged for a lender's title insurance policy that protects the lender's security interest in the property.
Lender's Policy
When you refinance your home or take out a new mortgage, the lender seeks protection for its investment by requiring the purchase of a lender's title insurance policy to protect against losses resulting from claims made by others against your new home.
Owner's Policy
Since a lender's policy does not protect your financial interests, an owner's title insurance policy is worth serious consideration. If someone has a claim against the title to your new home and you are not insured, the result could be financial disaster. Many insurers offer discounts when both the lender and owner policies are purchased at the same time.
Title Discount Definitions
Concurrent Rate Discount for Lender's and Owner's Policy
Title only - a discount may be applicable when purchasing a lender's policy and owner's policy from the same title company.
First Time Homebuyer's Discount
Title and Escrow - usually relates to a one-to-four family residential property.
Professional Discount
Title and Escrow - title companies may offer this discount to professionals such as lawyers, engineers or teachers.
Senior Citizen Discount
Title and Escrow - a discount to buyers age 55 or older. Please visit the U.S. Housing and Urban Development Web site for additional information on RESPA and title insurance.
Short Term Rate
Title only - relates to the purchase of a new title insurance policy on a property that has been sold or insured within the last two to five years.
Subdivision Bulk Rate Discount
Title and Escrow - relates to the purchase of a new home sold by a developer or contractor selling multiple homes in a subdivision and using the same title and escrow company.
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Important Tips
- Be sure to check to see that the title policy amount is correct.
- Check to see that the effective date given on the policy matches the actual closing date of the escrow.
- Verify that the policy describes all of the property and all of the interests being acquired.
- Discounts may be available for first time buyers and for others with special circumstances. Always ask your broker, lender or title insurer about available discounts.
- Concurrent rates may be available if the insurer is providing both a homeowner's and a lender's title insurance policy in the same transaction.
- Discount rates may be available in bulk rates for new subdivisions. After reviewing available discounts, always inform the broker or lender about discounts that may apply to you.
- Refinancing discounts and short-term financing rates may be available. Discuss discounts with your escrow or title officer.
Final Thoughts
If you suspect that a title insurance company is offering unlawful rebates or commissions, you can report this suspected activity to the California Department of Insurance (CDI). An unlawful rebate occurs when a lender or real estate broker or homebuilder receives free services, property, or money in exchange for steering buisiness to a title company. Such rebates act to inflate title insurance premium rates for all consumers. It is also unlawful if a title insurer, underwritten title company, or a controlled escrow company offers you a fee or charge that is less than the currently effective schedule for fees and charges filed with the CDI. The filed schedule is used as a basis for comparison between companies. If a title insurer offers a rebate from the scheduled fees and charges, it results in a discriminatory practice, which is unfair to all consumers. Like rebating, it is unlawful to pay a commission indirectly or directly to any person as a means of generating a referral or actual placement of title insurance. If either of these activities involves an escrow transaction, where a title insurance company is not handling the escrow function, you can report this activity to the Department of Real Estate.
If you have a question, problem, or dispute with a title insurance company, contact the CDI for assistance.
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Other Resources
California Department of Real Estate
2201 Broadway
Sacramento, CA 95818-2500
(916) 227-0864 (Consumer Help)
(916) 227-0931 (Licensing)
Web site: www.dre.ca.gov
California Department of Corporations
1515 K Street, Suite 200
Sacramento, CA 95814-4052
(916) 445-7205
Web site: www.corp.ca.gov
Contact regarding complaints against independent escrow
companies only
(Escrow companies owned by a title company are controlled
escrow companies regulated by the California Department
of Insurance.)
California Contractors State License Board
9821 Business Park Drive
Sacramento, CA 95827
(800) 321-2752
Web site: www.cslb.ca.gov
Contact for complaints against homebuilder/contractors
California Land Title Association
1110 K Street, Suite 100
Sacramento, CA 9581-3905
(916) 444-2647
Web site: www.clta.org
Contact for consumer information regarding title and various real
estate topics
Office of the Comptroller of the Currency
Customer Assistance Group
1301 McKinney Street, Suite 3450
Houston, TX 77010
(800) 613-6743
Web site: www.occ.treas.gov
Contact for consumer complaints regarding national banks
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
(800) 842-6929
Consumer Affairs Regional office (California)
P.O. Box 7165, San Francisco, CA 94120
(650) 746-7098
Web site: www.ots.treas.gov
Contact for consumer complaints regarding thrift institutions/savings and loan
U.S. Department of Housing and Urban Development
Web site: www.hud.gov
Contact for homebuyer information regarding settlement services
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