Frequently Asked Questions
Buying a home is, for many of us, the most substantial, single investment we’ll ever make. Knowing this, most homeowners provide for the security and safekeeping of their homes by insuring them against hazards such as fire, theft, and weather damage. Yet, title defects can pose an even greater risk to home ownership.
Title defects can cause a homeowner to lose part or all of their investment in real property. Fortunately, there is a way to protect your investment from title defects – Title Insurance.
Title is a collective term that includes your legal right to own, possess, use, control and dispose of land. Title takes into account all previous ownership, uses and transferred. Title to property is transfer by a deed.
A title defect is something missing from the title, for example, an undisclosed heir from a previous owner who could make a claim on the land. An encumbrance is any right to or interest in land that affects its value (i.e., outstanding mortgage loans, unpaid taxes, easements, deed restrictions). If you are borrowing money to purchase land, your lender will require your title to be cleared of any outstanding defects or encumbrances before the land is transferred.
Land is permanent, and the usage of land can change over the years. A landowner can transfer various rights from the title such as mineral, water or utility rights. Even if the land is vacant when you buy it, it may have a history you don’t know about, so it is necessary to search the title to determine if any defects or encumbrances are outstanding and to clear those items that you or your lender do not accept.
- Forgery items such as forged deeds, release of deed of trust, power of attorney
- Mental Incompetence – someone signing a deed was not of sound mind when document was executed
- Mistakes in recording legal documents
- Undisclosed or missing heirs
- Misinterpretation of wills
- Errors in indexing
- Defective acknowledgments
- Improper corporate deeds
- Incorrect legal description
- Execution of a deed by a minor
Title insurance provides coverage for things that may have happened in the past; as compared to automobile insurance or homeowner’s insurance that provide coverage for things that may happen in the future. Examples of possible title problems include undisclosed or missing heirs or improper deeds. More examples are listed below.
There are two types of title insurance policies:
- Lender’s Title Policy (also called a loan policy): The lender’s title policy financially covers the amount of the loan and provides protection to the lender. A lender’s title policy usually does not represent the full property value.
- Owner’s Title Policy: An owner’s title policy protects the landowner and can financially cover the full property value. If a claim is made against the title, the title insurer must pay any and all costs associated with defense against the challenge, and, if unsuccessful in that defense, reimburse the landowner for any reduction in the value of the land.
A title search is a detailed examination of the historical public records concerning a property. These records include deeds, court records, property and name indexes and many other public documents. The purpose of the search is to verify the seller’s right to transfer ownership and to discover any defects or encumbrances on the title.
A title search should show all title defects and encumbrances as well as liens and other restrictions. Among these are unpaid taxes, unsatisfied mortgages, judgments against the seller and restrictions limiting the use of the land.
Yes. There are some hidden hazards that even the most diligent title search may never reveal. For instance, the previous owner could have incorrectly stated his or her marital status, resulting in a possible claim by a legal spouse. Other hidden hazards include fraud and forgery, defective deeds, mental incompetence, confusion due to similar or identical names and clerical errors in the records. These defects can arise after you have purchased property and can jeopardize the right to ownership.
No. A deed is just a document used to show transfer of ownership and is evidence only that you have taken over whatever rights the seller had in the property. A deed does not eliminate the rights others may have, and a deed does not show the liens or claims that may be outstanding against the title.
A title policy insuring the seller does not protect you. Many things could have happened to the land since that owner’s policy was issued. Your seller could have a mortgage, a home equity loan, judgments or unpaid taxes that would not be covered in a seller’s title policy.
If a title problem arises, you would file a claim with the title insurance company. Filing instructions are found on the title policy jacket. The policy ensures that the title insurance company will defend your rights without you having to pay court costs and attorney fees. If you did not have owner’s title coverage, you would have to pay an attorney out of your pocket to resolve the matter, the cost of which would be far greater than the one-time premium fee.
Absolutely. Homeowners insurance typically provides protection against theft, accidental damage or natural disaster such as a tornado, earthquake or hurricane. While these types of losses can certainly be substantial, losses from a defective title could be devastating. If a fire destroys your home, you can rebuild and buy new possessions. If the title to the land fails, you could lose the right to inhabit your home as well as the land it occupies.
Normally, title insurance is a settlement cost associated with any purchase or refinance transaction. Charges vary in different sections of the country. The important thing to remember is that you pay for an owner’s title policy only once when you purchase a property. The cost of an owner’s title policy is based on the purchase price. The cost of a lender’s title policy is based on the loan amount.
No. The title insurance premium for an owner’s title policy is a one-time fee paid at settlement. The same is true of the lender’s title policy, unless you refinance the loan. If you refinance, the lender will require you to purchase another lender’s title policy. The cost of the premium will be based on the loan amount. If you never refinance the loan, then you will never have to pay for title insurance again for that particular property.
No. The owner’s title policy that you paid for when you purchased the property covers you for as long as you own the property. In other words, as long as your name is on the title, the owner’s title policy will cover you. However, the lender/loan title policy is only in effect as long as you have the loan. If you ever refinance the loan, the lender will require a new title policy. The lender’s title policy premium is determine by the loan amount.
A title insurance policy provides coverage from the time of its effective date back to the origin of title. After the property has passed to your heirs, if it is found that a title defect arose prior to the effective date of the policy, the title insurance company would defend the title for your heirs just as it would for you if you were alive.
You can obtain title insurance from any licensed title insurance company or its agents operating in your state. When choosing a title insurer, it is important to look for a company with expertise and experience, as well as the financial strength to protect you should a claim arise. Premium Title & Escrow is able to provide all your title insurance needs.
Yes. We will come to your office for an additional moderate fee.
If one of the parties is unable to attend the settlement, you need to contact us as soon as possible in advance of the settlement date. We either will make arrangements to send the documents to them or we will arrange for them to sign a Power of Attorney that complies with the applicable jurisdiction. Note: If a loan is involved, the lender must approve the use of a Power of Attorney prior to settlement.
Your lender will provide you with a “Good Faith Estimate” of your settlement costs. Also, you can call us to see if the lender has sent the closing instructions with the final figures. We will not be able to determine the amount of money you will need to bring to settlement until we receive the lender’s instructions for completing the HUD-1 Settlement Statement. Closing costs must be paid with a cashier’s check, money order, or cash. Personal checks are permitted ONLY IF the amount due is less than $500.
A current picture I.D. (i.e., driver’s license, passport, government ID).
For each transaction, title companies must incur costs in order to move settlement forward. At settlement, those fees are included on the HUD-1 Settlement Statement in order for the title company to be reimbursed. However, if settlement does not occur, you will be required to pay cancellation fees such as the cost of the title search and the survey.
When more than one person purchases real estate, there are three basic ways the purchasers may take title. There may be estate planning or tax planning considerations that may affect the decision as to how title should be taken. Consult with an attorney for further details.
- TENANTS BY THE ENTIRETY WITH RIGHT OF SURVIVORSHIP – This ownership form can only be given to a husband and wife. Unless otherwise instructed, all deeds for married purchasers are prepared in this manner. Transfer of any interest in the property would require the signatures of both spouses. Creditor claims against only one spouse will not attach to the property. If a spouse dies, the surviving spouse automatically takes full title to the property. Divorce severs the right of survivorship and if both parties remain on the title, then they will automatically hold title to the property as Tenants in Common (see below).
- JOINT TENANTS WITH RIGHT OF SURVIVORSHIP – This ownership form is available when property is conveyed to two or more persons. The interest of a deceased owner automatically passes to the surviving owners. A transfer of an interest in the property does not require the signature of all owners. Any lifetime transfer by one or more owners converts that ownership interest to Tenants in Common (see below). The property may be subject to the claims of a creditor of any owner. A joint owner may cause the partition of the property.
- TENANTS IN COMMON – This ownership form is available when the property is conveyed to two or more persons each of who has a specific fractional interest. There is no right of survivorship. Therefore, the interest of a deceased owner does not automatically pass to the surviving owners. Instead it would pass to the heirs of the deceased as specified in the will of the deceased, or in the absence of a will, to the legal heirs. A transfer of an interest in the property does not require the signatures of all owners. The property may be subject to claims of a creditor of any owner. Any owner may cause a partition of the property.
Even though Virginia is a Wet Settlement state, agents are required to search current title and record in the land records before any funds can be disbursed.
The state of Virginia requires all funds brought or sent to closing are liquid. The lender and purchaser may wire their funds, or bring a certified or cashier check to closing.