TITLE 101TITLE 101IntroductionIntroduction

• A real estate investment is A real estate investment is substantial, perhaps your client’s substantial, perhaps your client’s largest largest outlay of money, and outlay of money, and therefore, the largest risk. therefore, the largest risk.

• Title Insurance covers some of that Title Insurance covers some of that risk.risk.

• Although Title Insurance is a large Although Title Insurance is a large part of the real estate process, it is one part of the real estate process, it is one of the least understood.of the least understood.

……………………..What is Title Insurance ?..What is Title Insurance ?

TITLE 101 : Title TITLE 101 : Title InsuranceInsurance

• Title insurance is “insurance” that covers Title insurance is “insurance” that covers defects in the title from prior to when your defects in the title from prior to when your client purchased their property. It protects the client purchased their property. It protects the Buyer from unforseen defects to the title of Buyer from unforseen defects to the title of their property, things that could affect their their property, things that could affect their rights of ownership. rights of ownership.

• The title “process” provides information about The title “process” provides information about the property and involves the proper the property and involves the proper distributions, payoffs, and paperwork involved distributions, payoffs, and paperwork involved in the transfer of the property.in the transfer of the property.

……………………Who are the Players?Who are the Players?

TITLE 101 : The PlayersTITLE 101 : The PlayersBuyerBuyer

• The BUYER is typically responsible to pay for The BUYER is typically responsible to pay for Title Insurance and has the right, according to Title Insurance and has the right, according to law, to engage a title company (agency) of law, to engage a title company (agency) of their choice.their choice.

• The BUYER is usually required by the Lender The BUYER is usually required by the Lender to provide coverage in the amount of the to provide coverage in the amount of the loan…”lender’s coverage”.loan…”lender’s coverage”.

• The BUYER can also choose to purchase The BUYER can also choose to purchase “owner’s coverage” in the amount of the “owner’s coverage” in the amount of the purchase price.purchase price.

TITLE 101 : The PlayersTITLE 101 : The PlayersBuyerBuyer

• RESPA makes it unlawful for a lender, RESPA makes it unlawful for a lender, Broker, attorney or Seller to require a Buyer Broker, attorney or Seller to require a Buyer to use a particular title Insurance provider.to use a particular title Insurance provider.

• The BUYER will have to choose from a The BUYER will have to choose from a variety of ENDORSEMENTS to the policy.variety of ENDORSEMENTS to the policy.

• Some Endorsements are required by the Some Endorsements are required by the lender, however, others may be advisable.lender, however, others may be advisable.

• See See http://www.patitleratingbureau.org/about-tirhttp://www.patitleratingbureau.org/about-tirbop/tirbop-rate-manualbop/tirbop-rate-manual for a list of approved Pennsylvania for a list of approved Pennsylvania Endorsements.Endorsements.

TITLE 101 : The PlayersTITLE 101 : The PlayersSellerSeller

• The SELLER typically warrants “good and The SELLER typically warrants “good and marketable title”, that is title that is free of marketable title”, that is title that is free of any any liensliens or adverse claims that would impair or adverse claims that would impair its marketability or cast doubt that ownership its marketability or cast doubt that ownership is vested in the owner of record.is vested in the owner of record.

• The SELLER is responsible to pay off any The SELLER is responsible to pay off any liensliens or or encumbrancesencumbrances..

• Liens Liens are legal claims or security interests in a piece are legal claims or security interests in a piece of property, usually to secure a debt.of property, usually to secure a debt.

• EncumbrancesEncumbrances are legal interests, claims or are legal interests, claims or restrictions upon property in the form of liens, restrictions upon property in the form of liens, encroachments, deed restrictions, licenses, encroachments, deed restrictions, licenses, easements, or mortgages…..easements, or mortgages…..

TITLE 101 : The PlayersTITLE 101 : The PlayersSellerSeller

• The SELLER must provide the title The SELLER must provide the title agency with paid tax receipts and agency with paid tax receipts and mortgage and lien payoff mortgage and lien payoff information. This can be information. This can be accomplished by the seller(s) accomplished by the seller(s) themselves or through the realtor, themselves or through the realtor, the title agency or a settlement the title agency or a settlement services company specializing in services company specializing in conveyancing.conveyancing.

TITLE 101 : The PlayersTITLE 101 : The PlayersReal Estate Broker/AgentReal Estate Broker/Agent

• The Real Estate Agent typically acts as a The Real Estate Agent typically acts as a facilitator, acquiring and distributing facilitator, acquiring and distributing information to make sure that the process information to make sure that the process keeps moving towards settlement.keeps moving towards settlement.

• Who chooses the Title Company?Who chooses the Title Company?

• Realtors often charge "conveyancing fees"(to Realtors often charge "conveyancing fees"(to the Seller) for their assistance in obtaining the Seller) for their assistance in obtaining information and documentation for closing. information and documentation for closing. Such fees should be disclosed and agreed to Such fees should be disclosed and agreed to by the Seller in writing.by the Seller in writing.

TITLE 101 : The PlayersTITLE 101 : The PlayersLenderLender

• Most lenders require a title insurance Most lenders require a title insurance policy to protect the lender against policy to protect the lender against claims that may not have been discovered claims that may not have been discovered by the title search. by the title search.

• The insurance provides protection for the The insurance provides protection for the lender's security interest (mortgage) in lender's security interest (mortgage) in the property. the property.

• The title insurance required by the lender The title insurance required by the lender protects protects only the lender. only the lender.

How do we protect the How do we protect the Buyer....Buyer....

TITLE 101 : The PlayersTITLE 101 : The Players

• Owner's coverage - Owner's coverage - To protect To protect your client (the Buyer) against title your client (the Buyer) against title problems (preferably with as few problems (preferably with as few exclusions from coverage as exclusions from coverage as possible). It usually only costs a possible). It usually only costs a fraction more, attributed to the fraction more, attributed to the usually higher value of the property usually higher value of the property versus the amount of the mortgage.versus the amount of the mortgage.

TITLE 101 : The PlayersTITLE 101 : The Players TITLE AGENCY, SEARCHER, and TITLE AGENCY, SEARCHER, and

UNDERWRITERUNDERWRITER

• TITLE AGENCIES are agents of the TITLE AGENCIES are agents of the title underwriters for the purpose of title underwriters for the purpose of issuing title insurance policies. issuing title insurance policies.

• In general, they also accept In general, they also accept applications for title insurance, applications for title insurance, process the request, prepare title process the request, prepare title commitments, conduct the closings commitments, conduct the closings and issue the title insurance policy on and issue the title insurance policy on behalf of the title underwriter. behalf of the title underwriter.

TITLE 101 : The PlayersTITLE 101 : The Players• UNDERWRITER: The Title Insurance Underwriter UNDERWRITER: The Title Insurance Underwriter

is the entity that provides the title insurance is the entity that provides the title insurance according to the title policy. Pursuant to the according to the title policy. Pursuant to the policy, they owe two duties to their insureds: a policy, they owe two duties to their insureds: a duty to defend, and a duty to indemnify. Their duty to defend, and a duty to indemnify. Their obligations to their insureds are governed by the obligations to their insureds are governed by the terms of the title policy. Title claims are terms of the title policy. Title claims are submitted to the underwriter for determination. submitted to the underwriter for determination. In addition, title underwriters provide assistance In addition, title underwriters provide assistance to their issuing agents in issuing title insurance to their issuing agents in issuing title insurance policies. Underwriting attorneys are available for policies. Underwriting attorneys are available for consultation, and for certain issues, may even consultation, and for certain issues, may even have to approve the agent’s ability to issue a have to approve the agent’s ability to issue a policy of insurance. policy of insurance.

• A title agency can have multiple underwriters. A title agency can have multiple underwriters.

TITLE 101 : The TITLE 101 : The PlayersPlayersSearcherSearcher

• A title searcher is engaged to review the records and to A title searcher is engaged to review the records and to report that information back to the title agent. report that information back to the title agent.

• The title search may be performed by a lawyer, an The title search may be performed by a lawyer, an escrow or title company, or as is usually the case these escrow or title company, or as is usually the case these days, an individual specializing in searches.days, an individual specializing in searches.

• Title searches can be very time and labor intensive, or, if Title searches can be very time and labor intensive, or, if real estate records are computerized, it can be real estate records are computerized, it can be completed fairly quickly.completed fairly quickly.

• Liens, records of deaths, divorces, court judgments, and Liens, records of deaths, divorces, court judgments, and contests over wills must all be examined, possibly contests over wills must all be examined, possibly requiring a search of government offices such as requiring a search of government offices such as surveyors, county courts, tax assessors, and recorders of surveyors, county courts, tax assessors, and recorders of deeds. deeds.

TITLE 101 : The ProcessTITLE 101 : The Process

• The title underwriter issues a The title underwriter issues a binder, indicating their intention binder, indicating their intention to insure the title on a given to insure the title on a given property and specifying the property and specifying the amount of insurance, covered amount of insurance, covered parties, policy terms, limitations parties, policy terms, limitations and conditions.and conditions.

TITLE 101 : The ProcessTITLE 101 : The Process

• The parties then work to clear any The parties then work to clear any clouds (i.e., encroachments) to the clouds (i.e., encroachments) to the title. For example, if there is an title. For example, if there is an unpaid judgment on the property, unpaid judgment on the property, the parties make an effort to get the the parties make an effort to get the judgment paid and clear the title at judgment paid and clear the title at or before closing.or before closing.

TITLE 101 : The TITLE 101 : The ProcessProcess

• The title agency, through their closing The title agency, through their closing officer, usually (but not always) hosts the officer, usually (but not always) hosts the closing and proceeds to pay off liens and closing and proceeds to pay off liens and judgments, prorate tax payments and judgments, prorate tax payments and make distribution based upon the HUD-1 make distribution based upon the HUD-1 Settlement Sheet that they prepared. Settlement Sheet that they prepared. The new mortgage and deed are The new mortgage and deed are executed and recorded at the courthouse executed and recorded at the courthouse in the county in which the home is in the county in which the home is located.located.

TITLE 101 : The TITLE 101 : The ProcessProcess

• Usually, especially if requested Usually, especially if requested (RECOMMENDED) , the title officer (RECOMMENDED) , the title officer marks up the title report to show marks up the title report to show that liens were satisfied, that liens were satisfied, endorsements applied and objections endorsements applied and objections are removed.are removed.

• Generally, the premium is paid by Generally, the premium is paid by the buyer / borrower at the closing the buyer / borrower at the closing table.table.

TITLE 101 : The ProcessTITLE 101 : The Process

• After the closing the insurance After the closing the insurance company issues the actual title company issues the actual title policy. The buyer's policy is policy. The buyer's policy is generally sent to the Buyer. The generally sent to the Buyer. The lender's policy is typically sent lender's policy is typically sent directly to the lender. directly to the lender.