What does the term "Title" mean?
What is title insurance?
What is the difference between an owner's policy and a lender's policy of title insurance?
How long does title insurance last?
How much does title insurance cost?
• Why is it in my best interest to purchase title insurance?
• Doesn't my deed prove that I have clear title and own the property?
What is a title search and examination?
What kind of problems can a title search reveal?
If a careful and thorough search is done before closing, can problems still arise?
• Do I need title insurance if I'm refinancing my property?
Why don't I receive a new deed when I refinance?
I am the sole owner of my property and the only person in title on my deed. I married after I purchased the home. If I'm the only borrower, why does my spouse need to the sign the deed if I sell the property or sign the mortgage when I refinance?
• What does a title agency do?
• What is a Closing"?
What is a HUD Settlement Statement (HUD-I)?
Q: What does the term "Title" mean?
A: "Title" is the legal ownership of real estate (a parcel of land).
Q: What is Title Insurance?
A: An insurance policy which protects the homeowner and/or lender against loss from any defects in the title or claims against the property that were not discovered during the title search and examination. There are two basic types of title insurance policies:
1) An owner's policy and
2) A lender's policy
Q: What is the difference between an owner's policy and a lender's policy of title insurance?
A: An owner's policy guarantees your ownership of the property you purchased. It guarantees that your ownership is also free from liens, encumbrances, and defects, except as listed in the policy. It also guarantees that you have access to the land and the legal right to sell the property and convey marketable (saleable) title to a new owner. An owner's policy insures only the purchaser/owner against a loss that may arise by reason of a defect in their title or ownership of real property. The limit of an owner's policy will generally be for the market value of the house at the time of purchase.
A lender's policy protects only the lender's interest in the property. Primarily, it insures the lender that it has a priority lien on the property in case the owner defaults on his/her obligation and the lender needs to foreclose on the property. The limit of the Lender's Policy is the amount of the loan and it decreases as the loan is paid down. Finally, the Lender's Policy expires upon payment in full of the loan/mortgage.
Q: How long does title insurance last?
A: An owner's policy lasts for as long as the owner(s) or their heirs own the property. A lender's policy is in effect until the loan is paid in full, at which point it expires.
Q: How much does title insurance cost?
A: An owner's policy is a one-time only expense related to the value of the home at the time of purchase. Coverage lasts as long as the owner or their heirs own the property.
The cost of a lender's policy is directly related to the amount of the loan. The policy's coverage decreases as the loan is paid down and expires upon payment in full.
Q: Do I need title insurance if I'm refinancing my home?
A: Yes. Here's why: The lender's policy of title insurance remains in effect only during the life of the loan. When you refinance, the old loan is paid off and the "life" of the loan then expires. A new loan is then issued for which the lender will require a new title insurance policy to protect its interest. Even if you recently purchased or refinanced your home, there are some problems that could arise. For instance, you might have a judgment placed on your home due to unpaid taxes, homeowner's dues, unpaid child support or you might have incurred a "mechanic's lien" from a contractor who claims non-compensation for work performed on your home. The lender needs reassurance that the title to your property they are refinancing is free and clear of any liens, encumbrances, and defects, even if you decide to obtain a new loan with the same lender.
Q: What does a title agency do?
A: Before the closing of a loan or sale takes place, a title agency, or an abstractor hired by the title agency, searches the public courthouse records for documents that affect the property. This includes searching deeds, mortgages, tax records, judgments, property and name indices, and other documents.
The results of this search and examination will then be provided in a preliminary title report or "commitment" to insure the property. A commitment is a binding contract that reflects the current state of title before a loan or sale is closed and describes the interest to be insured, the current owner, the legal description of the real estate, the amount of coverage (generally the purchase prices in an owner's policy or the loan amount in a lender's policy), as well as any requirements and exceptions to coverage.
This commitment ensures that, when it comes to the land in question, every possible defect on the title that can be discovered from the public records has been stated in the commitment. This way, these defects can be corrected prior to closing, otherwise such defects will continue to adversely affect the property and priority of their interests after closing.
The closing department then oversees that all requirements set forth in the title commitment are met, all defects are addressed and disposed of, and that all necessary documents are executed to secure the interests of both the buyer and lender. After all the necessary documents are recorded in the public records at the county courthouse, a final title insurance policy or policies are issued.
In the event that a defect in the title, which wasn't set up as an exception to coverage is discovered, the title agency will be called upon to negotiate, settle, or pay the claim.
Q: What is a title search and examination?
A: It's a careful inspection or examination of public records (found at the county courthouse) that affect a property. The person conducting the search, called an abstractor or a searcher, looks at past deeds, wills, and trusts in the "chain of title" to ensure that the title has been correctly passed to each new owner. The purpose of the search is to verify the seller's legal right to sell the property and to discover any claims, liens, defects, and other burdens on the property. The searcher attempts to verify that all prior mortgages, judgments, and liens have been paid in full. Because problems with real estate are transferred with the ownership, the search and examination process protects everyone involved in the transaction.
Q: What kind of problems can a title search reveal?
A: A title search can reveal if any other party might have an interest in the property in question. In addition, a title search can reveal a number of title defects including: restrictions on the use of the land; unsatisfied mortgages; unpaid taxes; or judgments against the buyer or seller, all of which can adversely affect title to real estate.
Q: If a careful and thorough search is done before closing, can problems still arise?
A: Yes. There are several "hidden hazards" or risks that are impossible for a search to uncover but can threaten the title to your property. Even the most thorough search and examination isn't a guarantee that a problem has been identified and resolved.
Here are some of the most common "hidden hazards" that can cause a loss of title or an expensive lawsuit:
Fraud & Forgery: False impersonation of the true owner of the property, forged deeds, wills, releases, signatures, conveyances, and many more.
Liens: Liens for unpaid estate, inheritance, income, property and gift taxes, unpaid mortgages, mechanic's liens (from a contractor who claims non-compensation for work performed on your home), etc.
Human Error: Mistakes in indexing and recording of documents in the public records, items missed or omitted during the title search and examination.
Invalid Deeds: Deeds of conveyance signed by a minor or persons of an unsound mind, defunct corporations, or by persons who claim to be single but are, in fact, married.
Improper Wills: Misinterpretation of a will, undisclosed or missing heirs with claims against the property and illegal acts of executors or administrators.
A title insurance policy protects the owner against all these hidden risks and more.
Q: Why is it in my best interest to purchase title insurance?
A: An owner's policy of title insurance protects you against the "hidden hazards" not disclosed during the search and examination of your title. Without title insurance, you may be held fully accountable for any claims, judgments, or liens against your property, any of which could be a large financial burden to bear. When you purchase title insurance, however, the title insurance company protects you by:
1) Defending your title in court at their expense; and
2) Bearing the cost of negotiating, settling or paying the claim if it proves valid in order to protect your title and keep you in possession of your property.
Q: Why don't I receive a new deed when I refinance?
A: A deeds conveys ownership from the seller(s) to the buyer(s) in a purchase transaction. In a refinance, there is no change of ownership; you are merely obtaining a new loan.
Q: Doesn't my deed prove that I have clear title and own the property?
A: No. A deed merely transfers a seller(s) right of ownership to a buyer. From the deed, it cannot be determined what, if any, liens, rights or claims may be outstanding against a title. There can be "Hidden Hazards" that affect the ownership of a piece of real estate. A deed DOES NOT guarantee ownership. If it did, title insurance would not be necessary.
Here's an example: Let's say you are selling your home. An initial title search of your property reveals three prior owners in the "chain of title" before you closed and took title to your property. It is discovered that one of the deeds transferring title to the property was forged at closing by someone impersonating the true owner of the property. It seems the property was actually owned, but never used, by someone who lived out of state. Therefore, the deed transferring the property was invalid and you may potentially lose the title to your property. By having an owner's policy of title insurance, the title insurance company will negotiate, settle, or pay the claim. In a case where there's a total loss of title to your property, the title insurance company will reimburse you up to the face amount of your policy.
Q: I am the sole owner of my property and the only person in title on my deed. I married after I purchased my home. Why does my spouse need to the sign the deed if I sell the property or sign the mortgage when I refinance?
A: If the property is used as your primary marital residence, it is required by New Jersey Law under New Jersey Statue 3B: 28-3. Your spouse has a marital right of joint possession in your property even though his or her name is not on the deed and therefore must sign the deed when you sell the property or sign the mortgage when you refinance your home.
Q: What is a HUD Settlement Statement (HUD-I)?
A: It's a statement of the financial portion of the real estate transaction. This form, used by the settlement or closing agent to itemize all charges for a real estate transaction, gives each party a complete list of their incoming and outgoing funds associated with the purchase of a home or the refinance of a home loan.
Q: What is a Closing"?
A: A closing, also called "settlement," is the final step, or consummation, of a real estate transaction between two parties.
In a purchase transaction, "closing" is when title to the real estate is transferred to the buyer in exchange for payment of the purchase price and/or loan.
In a refinance transaction, "closing" can also refer to the appointment between clients and their settlement agent where the papers are signed to secure the lender and final details are addressed.
