If first-time home buyers remember one thing, it should be this: the house may be brand new, but the land is not. It may have a long chain of ownership, debt, lawsuits and liens. A deed will not tell this story but a title company can. This is why banks require title insurance when issuing mortgage loans: to ensure that no other party can lay claim to their collateral. What does this mean for the homeowner? After all, the bank only requires a lender’s policy equal to the loan amount. How can the owner reap the full benefit of a title policy?
Purchase an owner’s policy
While a lender policy will satisfy your bank’s closing conditions, it does not protect the owner from the emergence of undetected heirs, from errors in the title examination, or from lien holders that were not properly documented. Furthermore, its amount diminishes as you make monthly mortgage payments. An owner’s policy, on the other hand, covers the full purchase price of the home and remains in effect until the owner sells the property. Although the one-time premium increases the closing costs, the protection afforded by an owner’s policy is priceless in terms of protecting the buyer’s interests.
Make sure you have all the necessary endorsements
Again, the lender will communicate its title requirements when it approves the loan, including which endorsements it wants attached to a title policy. Endorsements are additional certifications approved by the American Land Title Association that address particular concerns that have arisen because of legal statutes or case law. Examples of title endorsements apply to condominiums, planned unit developments, adjustable rate mortgages, environmental liens and utility easements. Although the bank may require some, it is a good idea for borrowers to consult an attorney to determine if others are necessary for their particular property.
Make use of your attorney
While title agencies are regulated and licensed in every state, their relationship to home buyers is always that of vendor to customer. They cannot, for instance, serve as your representative with the bank, nor can they litigate on your behalf if that’s needed. As with procuring the right endorsements, a competent real estate attorney can assist you by reviewing title documents to make sure you are neither legally exposed nor financially compromised. They also serve as a second set of eyes to catch errors or inconsistencies.
Research state regulations
Each state sets a minimum rate on which title agencies base their charges. This is known as the promulgated rate and the title agencies cannot go below it. Knowing this figure allows you to compare the legally mandated charges to the fees set forth on your Good Faith Estimate issued by the bank. While it is not advisable to nickel and dime the title company over every charge, your loan officer or attorney can potentially help you negotiate for a lower premium.
