So how do you know what to expect on your settlement sheet?

 

Rates are calculated on the basis of the purchase price of the home. The higher the purchase price, the more title insurance will cost. Without going into the technicalities of calculating rates, you can use our simple calculator, found here, to figure out what your rate will be at settlement.

 

Specifically, many purchases are subject to a standard rate for purchases between $40,000 and $250,000. Below $40,000, a minimum charge of $140 applies. For purchases above $250,000, there is a small savings per $1,000 of coverage, since you’ve already paid insurance on the first $250,000.

 

There is also the cost of the lender’s title insurance policy. Most purchases are made with a loan, and lenders always require title insurance. When both an owner’s title policy and a lender’s policy are purchased, the second policy is available at a small cost (usually under $100) – which makes the owner’s policy a good value.

 

What if you want more protection for your home’s title? In that case, for an increased rate, there is enhanced title insurance, also known as “homeowners title insurance” available when you occupy your home. Although these policies cost more, they also extend many benefits that any homeowner would benefit from. These rates are also consistent across title insurers in the State of Maryland.

 

In some instances, real estate agents have “Affiliated Business Arrangements” (ABAs) with certain title companies. This arrangement is a legal way for realtors and title companies to share in the profits of the transaction. If you are purchasing a home through a real estate agent, look for forms you sign that disclose this arrangement and require you to use a particular title company. You do not have to sign these forms. As a buyer, you need to be aware that the only reason to use the title company affiliated with your real estate agent is if this is actually your best choice!

 

In other cases, a lender may influence which title company you use. The lender will recommend a particular company. If the buyer chooses another title company, an “attorney review fee” might be charged to review the buyer’s title company’s work. This fee can be a strong deterrent from exercising your right as the buyer to choose your own title company. If your lender is charging a review fee, be sure to ask Clear Title Group if they can help you absorb (some of) the buyer’s review fee, in the interests of handling the deal.

 

If the seller wants you to use their title company, keep the following points in mind: First, why is the seller making the request? Is there something in it for them? It can be very useful for a second set of eyes to take a look at the title which will increase the chances of catching any title mistakes. Second, under federal law, if a real estate buyer uses a (federally-related) mortgage loan to purchase a primary residence, a seller is prohibited from requiring the use of a particular title insurance company, unless the seller pays 100% of the insurance fees.

 

At the end of the day, buyers need to know their title company is fully in their court and not beholden to anyone else. That can be lost when a title company owes their allegiance first (or second) to a seller, a realtor or a lender.

 

And, in the state of Maryland, you DO have the right to choose your title company!

 

But even if you were purchasing a house with cash, you would especially want to be sure that your property’s title was clean and clear – that there were:

 

no forgeries, incorrect signatures or breaks in the chain of title;

no restrictive covenants that you were not made aware of;

no unreleased mortgages, unpaid taxes, judgements, bankruptcies, mechanics liens, federal or state tax liens,

 

…and every other imaginable thing that doesn’t usually happen, but too often does!

 

If problems do occur, title insurance pays the legal fees to defend a claim against the property. While a lender’s title policy is only in effect during the life of a loan, the owner’s policy lasts long as the owner owns the property. And, while a lender’s policy protects a lender only for the amount of the loan, the owner’s policy can protect a homeowner for the appreciating value of a home. Unlike other insurance which requires annual premiums, title insurance is paid only once at closing and is in effect for the entire time of property ownership.

 

A home is easily the largest single purchase an American will make in his or her lifetime. The cost is usually many times the buyer’s annual income! When it is time to sell, the owner expects to get fair market value, in cash, for his or her home.

 

But first, the owner must prove that they have the rights to receive any of the money. And to get all of the proceeds from the sale, the owner must prove that there are no liens on the property.

 

So, when it’s time to sell the home, there is a moment of truth for the owner. Are there any legal or financial ‘skeletons’ in the history of their house that will get in the way of the sale?

 

Fortunately for the seller, the buyer hires a title company to research the history of the home, and to give the buyer assurance that there are no such “surprises” lurking. The title company examines the history of people that have owned the property (the title abstract[link]), to confirm the owner has the right to sell. And the title company researches the history of money borrowed against the property, as well as court cases filed against the current and past owners of the property (the lien and judgment report).

Wikipedia describes title insurance as “indemnity insurance against financial loss from defects in real property.”  So what does that mean?  It means that buyers and those who lend money to buyers to purchase a home want assurance that title is clear and marketable.

 

“Clear” means free of liens or judgments – free of money owed on the property, either by the current owner, or past owners. “Marketable” means the owner has or owners have the right to sell the property – and that the people that sold it to them had the right – and so on.

 

Prior to title insurance, owners bore sole responsibility for the marketability of title. If a problem appeared, they were personally responsible to fix the legal problem, or make good on the financial obligations that the property carried.

 

When you buy a home, some of the money you pay to purchase the home goes toward title insurance. This title insurance “premium,” as it is called, goes into a large fund of premiums from everyone else who buys title insurance from that particular title insurer.

 

Then, if a problem arises, the funds in that account cover the costs of fixing that problem. It may be that money has to be paid to someone who has a lien on the house. Or it may be that an attorney needs to prepare and file a legal document to fix the title.

 

In summary, title insurance guarantees that you are able to sell your property when the time comes. You pay just one time for title insurance – at the time you purchase your home – and it protects you from the time you buy your house until you sell it. You pay no deductible and no further premiums.