Why do you need to buy title insurance again even though you purchased a policy when you first bought your home and there is no change in ownership?
It’s because a separate policy is needed by the lender insuring the validity of your mortgage when it is made.
For as long as you own the property your mortgage is valid, but it doesn’t insure the new mortgage created when you refinance, and it doesn’t provide protection against events that may have transpired between the time you purchase the property and when it is refinanced.
For example, you may have taken out a second mortgage on the home that could threaten the priority of the new lender’s mortgage. Or, there could be legal judgments against you or a mechanic’s lien against the property by a supplier who wasn’t paid for home improvements.
Lenders also insist on a new title policy because many mortgages are packaged as securities and sold to investors in the secondary mortgage market. Title insurance is the only practical way to provide the assurance investors demand and to ensure that the mortgages backing these securities are valid and enforceable.
Buying or selling a home (or other piece of real property) usually involves the transfer of large sums of money. It is imperative that the transfer of these funds and related documents from one party to another be handled in a neutral, secure and knowledgeable manner. For the protection of buyer, seller and lender, the escrow process was developed. As a buyer or seller, you want to be certain all conditions of sale have been met before property and money change hands.
The technical definition of an escrow is a transaction where one party engaged in the sale, transfer or lease of real or personal property with another person delivers a written instrument, money or other items of value to a neutral third person, called an escrow agent or escrow holder. This third person holds the money or items for disbursement upon the happening of a specified event or the performance of a specified condition.
Simply stated, the escrow holder impartially carries out the written instructions given by the principals. This includes receiving funds and documents necessary to comply with those instructions, completing or obtaining required forms and handling final delivery of all items to the proper parties upon the successful completion of the escrow.
The escrow must be provided with the necessary information to close the transaction. This may include loan documents, tax statements, fire and other insurance policies, title insurance policies, terms of sale and any seller-assisted financing, and requests for payment for various services to be paid out of escrow funds.
If the transaction is dependent on arranging new financing, it is the buyer’s or his agent’s responsibility to make the necessary arrangement.
Documentation of the new loan agreement must be in the hands of the escrow holder before the transfer of property can take place.
A real estate agent can help identify appropriate lending institutions.
When all the instructions in the escrow have been carried out, the closing can take place. At this time, all outstanding funds are collected and fees such as title insurance premiums, real estate commissions, and termite inspection charges are paid. Title to the property is then transferred under the terms of the escrow instructions and appropriate title insurance is issued.
Payment of funds at the close of escrow should be in the form acceptable to the escrow, since out-of-town and personal checks can cause days of delay in processing the transaction.
The following items represent a typical list of what an escrow holder does and does not do:
The escrow holder:
Serves as the neutral “stakeholder” and the communications link to all parties in the transaction
Prepares escrow instructions
Requests a preliminary title search to determine the present condition of title to the property
Requests a beneficiary’s statement if debt or obligation is to be taken over by the buyer
Receives purchase funds from the buyer
Prepares or secures the deed or other documents related to escrow
Prorates taxes, interest, insurance and rents according to instructions
Secures releases of all contingencies or other conditions as imposed on any particular escrow
Records deeds and any other documents as instructed
Requests issuance of the title insurance policy
Closes escrow when all of the instructions of buyer and seller have been carried out
Disburses funds as authorized by instructions, including charges for title insurance, recording fees, real estate commissions and loan payoffs
Prepares final statements for the parties accounting for the disposition of all funds deposited in escrow. (These are useful in the preparation of tax returns)
The escrow holder does not:
Offer legal advice
Negotiate the transaction
Offer investment advice
It is an unfortunate commentary, but when economic activity declines and housing activity decreases more real property enters the foreclosure process.
When prices are rapidly accelerating during a real estate “bonanza,” many people go to any lengths available, including the use of creative financing, to get into the market through investments in vacation homes, rental housing and “trading up” to more expensive properties.
Many buyers anticipate that interest rates will drop and home prices will continue to escalate.
Neither may occur, and when payments cannot be met, the foreclosure process looms on the horizon.
In the foreclosure process, one thing should be kept in mind: as a general rule, a lender would rather receive payments than receive a home due to a foreclosure.
Lenders are not in the business off selling homes and will often try to accommodate homeowners who are having payment problems. The best plan is to contact the lender before payment problems arise. If monthly payments are too hefty, it may be that a lender will be able to make some alternative payment arrangements until the owner’s financial situation improves.
Let’s say, however, that a homeowner has missed payments and has not made any alternate arrangements with the lender. In this case, the lender may decide to begin the foreclosure process.
Under such circumstances, the lender, whether a bank, savings and loan or private party, will request that the trustee, often a title company, file a notice of default with the county recorder’s office. A copy of the notice is mailed to the homeowner.
Once the notice of default has been recorded the homeowner has until five business days prior to the date set for the sale to cure the default by making up the payments.
Once the default is cured, the deed of trust or mortgage will be reinstated and regular monthly payments will continue as before.
If the default is due to a balloon payment not being made when due, the lender can require full payment on the entire outstanding loan as the only way to cure the default.
If the default is not cured, the lender may then direct the trustee to sell the property at a public sale. In cases of a public sale, a notice of sale must be published in a local newspaper and posted in a public place for three consecutive weeks. During this time, it may still be possible for the homeowner to work out a postponement of the sale with the lender.
However, if no postponement is reached, the property goes “on the block.” At the sale, buyers must pay the amount of their bid in cash, cashier’s check or other instrument acceptable to the trustee. A lender may “credit bid” up to the amount of the obligation being foreclosed upon.
With the recent attention given to foreclosure, there also has been corresponding interest in buying foreclosed properties.
However, caveat emptor; buyers beware. Foreclosed properties are very likely to be burdened with overdue taxes, liens and clouded titles.
A buyer should do his homework and ask a local title company for information concerning these outstanding liens and encumbrances. Title insurance may or may not be available following a foreclosure sale or various exceptions may be included in any title insurance policy issued to a buyer of a foreclosed property.
Your local title company will be happy to provide additional information.
Understanding closing costs is important, so you are not taken by surprise when you prepare to close the transaction.
Your title insurance is based on the purchase price of the property. The rate is set by the Pennsylvania Insurance Commission, and is standard with all title insurance companies.
The title insurance premium usually amounts to less than 1 percent of the purchase price of your home, and less than 10 percent of your total closing costs. So, although the title company or escrow office usually serves as a meeting ground for closing the sale, only a small percentage of the total closing fees are actually for title insurance protection.
Title Insurance protects against persons claiming a right, lien or encumbrance against the subject property.
Title insurance companies are in business to make sure your rights and interests to the property are clear, that transfer of title takes place efficiently and correctly and that your interests as a home buyer are protected to the maximum degree. Title insurance companies provide services to buyers, sellers, real estate developers, builders, mortgage lenders and others who have an interest in real estate transfer. Title companies routinely issue two types of policies – “owner’s,” which covers you, the home buyer; and “lender’s,” which covers the bank, savings and loan or other lending institution over the life of the loan. Both are issued at the time of purchase for a modest one-time premium. Before issuing a policy, however, the title company performs an extensive search of relevant public records to determine if anyone other than you has an interest in the property. Once a title policy is issued, if for some reason any claim which is covered under your title policy is ever filed against your property, the title company will pay the legal fees involved in defense of your rights, as well as any covered loss arising from a valid claim.
Nothing is more important than efficient, professional and courteous service when closing a residential or commercial transaction. That is why we, at Mutual Abstract Company, pride ourselves on delivering the most accurate and complete title commitments in a timely manner. Our clients have learned to expect the utmost in service and we deliver.
Mutual Abstract Company has over twenty years experience offering title services in Pennsylvania and has closed over 10,000 transactions. Our Underwriters include First American Title Insurance Company and Lawyers Title Insurance Company.
- Pennsylvania Land Title Association
- Home Builders Association of Bucks/Montgomery County
- Bucks County Board of Realtors
- Philadelphia Board of Realtors
- Feasterville Businessman’s Association