Shipping and handling fees. Transaction fees. Application fees. Late fees. Monthly service fees.
It seems like there is a fee for everything. And no one likes them – except the businesses or organizations who get to collect them!
When it comes to payments and fees included with buying a home, most of your clients probably understand that they may need a down payment and be responsible for a group of fees that are lumped together as closing costs.
One of those fees included in the closing costs is title insurance. Your clients may not know what that is and may ask you to explain it. If you don’t know the answer, don’t worry. By the end of this blog, you’ll know at least enough to give them a basic understanding.
What is title insurance?
Title insurance isn’t new. It started in the mid-19th century to ensure that the person selling land did, in fact, own the land they were trying to sell. An 1868 court case (Watson v. Muirhead, 57 Pa. 161) in Pennsylvania’s Supreme Court sparked the need for such verification.
Before title insurance, buying real estate involved a lot more risk. During a property transaction, rights of title to the property had to be established based on public records searches or other property abstracts. The title would need to be cleared of any liens or rights before transferring the property to the new buyer. Mistakes were easy to make, and dishonesty was an issue, so the risk of losing a property due to unresolved matters was very high.
But title insurance now protects against public record errors, incorrect notary public acknowledgments, unknown liens, or individuals who could claim property ownership but cannot prove it.
Lender’s title insurance
Lenders require title insurance in case there are any issues with the title (deed) after closing. However, the lender’s policy only protects the lender up to the mortgage amount, and it doesn’t protect your client’s equity in the property.
The lender’s title insurance will cover:
- Any unrecorded liens
- Defects and other unrecorded documents
- Unrecorded easements and access rights
Owner’s title insurance
If your client buys a home with cash (and doesn’t need a mortgage loan), they won’t be required to purchase lender’s title insurance. But they may still want to buy owner’s title insurance to protect themselves from any financial loss involving liens against the property they didn’t know about when they purchased the home.
Title insurance also protects the deed, the document that shows that the seller transferred their legal ownership to your client. This is important if someone later sues and says they have a claim against the home before your client bought it. Other protections may include:
- Title to the property
- Incorrect signatures on documents
- Forgery, fraud
- Inaccurate recording by notaries
- Restrictive covenants
- Judgments against the property
How Much Does Title Insurance Cost?
Just like other kinds of insurance, it can sometimes seem like a waste of money until you need it. So, even when it’s not required, the money is well spent.
But how much cash are we talking about?
According to the National Association of Independent Land Title Agents, your client can generally expect to pay anywhere from a few hundred to $2,000 for title insurance. The average cost of a lender’s and owner’s title insurance policy is $1,374 for a house priced at the national median value of $200,000.
Did you learn anything? Now you can help your clients understand a little more about title insurance and the mortgage lending process as a whole. This will make them feel more comfortable with their homebuying experience. And, they’ll have you to thank for it.
Author Shantanu Sharma Ph.D. NMLS 1677482. (2021, September 7). Title insurance – what homebuyers should know. Stem Lending. Retrieved October 12, 2021, from https://www.stemlending.com/title-insurance-homebuyers-cost-savings/.
5 kinds of insurance a new homeowner should consider. 5 Kinds of Insurance That Homeowners Need. (2018, June 27). Retrieved October 12, 2021, from https://www.araglegal.com/individuals/learning-center/topics/home-and-property/types-of-home-insurance.
How much will my title insurance policy cost? Spruce. (n.d.). Retrieved October 13, 2021, from https://spruce.co/blog/how-much-will-my-title-insurance-policy-cost.