Saturday, June 20, 2009

Protecting your interests. The basics of title insurance

If you’re planning to buy a home, the topic of title insurance will likely surface in one of the many discussions you’ll have with your Realtor or seller.

Like most types of insurance, title insurance is better to have and not need, than need and not have. But what is it, why do you need it, and how does it work?

What is title insurance?

Essentially, title insurance is a specialized insurance policy that protects your mortgage lender against mistakes made in a title search. If you fall in love with a home and there’s not a clear title to it, title insurance protects the bank – and you – if there’s a problem. A clear title means you’ll be able to occupy and use the property the way you want, and that you’re able to sell or pledge your property as security for a loan.

There are generally two types of title insurance: lender’s and owner’s title insurance. The lender’s policy is usually based on the dollar amount of your loan and protects the lender’s interests in the property against a problem with the title. The policy coverage decreases each year and goes away as the loan is paid off.

As its name suggests, the homeowner buys owner’s title insurance, which is in the amount of the real estate purchase, for a one-time fee at closing and lasts as long as you own or have an interest in the property. Owner’s title insurance fully protects the homeowner in the event that there’s a problem with the title that wasn’t discovered during the title search. This type of insurance also pays for any legal fees involved in defending a claim to your title. Think of owner’s title insurance as helping to protect your equity, your investment in a home.

A safeguard: just in case

Title insurance is a safeguard against loss arising from hazards and defects already existing in the title. While claims on title insurance are rare compared to other types of insurance, they still happen and can be a big legal mess to fix.

For example, one of the most common title insurance claims is for the cost of back property taxes that the title company missed in researching a sale. Or there’s not a clear title to the house, especially in cases of divorce. These examples might sound minor, but they can cost thousands in fees without title insurance.

Buying a new home and think there’s a clear title? Many consumers think they’re the first owner if they’re building a home on a lot, but it’s just as likely there were prior owners of the land. A title search will uncover any existing liens, and a survey can determine the boundaries of the property you’re buying for your new house.

Getting the most value

The cost of title insurance depends on the value of your property. In Texas, title insurance rates are set by the Texas Department of Insurance. According to the Insurance Information Institute and, here are some tips to consider when buying title insurance:

If you’re buying a pre-owned home or are in a buyer’s market, ask the seller to pay for your coverage. It can’t hurt, and it might just save you lots of green. You might have heard the adage that everything’s negotiable, and title insurance falls into that category.

Ask about inflation coverage. In the case of owner’s coverage, as the value of the home rises, so does the amount of your protection.

Ask about extended coverage. Title insurance policies may exclude coverage in the event of lot-line debates, unrecorded mechanics liens, and easement problems. Extended coverage can provide protection against such claims.

If you buy your own policy in addition to your lender’s policy, check it for exceptions that may leave you with less protection than you want.

To find out more about title insurance, ask your Texas Realtor.

You can also visit – the online source for consumer-friendly information about real estate in the Lone Star State.

–Art Rolader, chairman of the Arlington Board of Realtors

Title insurance has value

Fraudulent activity has escalated from cheque-writing scams to identity theft to actually stealing your home right out from under you.

What many homeowners don't realize is that title insurance could prevent or assist in correcting fraudulent activity.

For a one-time fee (that in many cases works out to less than the annual premium for an average homeowner's insurance policy), title insurance protects a purchaser against anything that may hinder clear possession of the property.

This coverage will pass to family members, as in the case of an inheritance.

Title insurance is purchased when title is conveyed. It is usually acquired through the lawyer handling the transfer of ownership, and actually may eliminate the need for thorough title searches.

It is also no-fault insurance so that if a problem arises, you simply make a claim, unlike the traditional process of having to prove negligence on the part of the lawyer conducting the searches.

Title insurance ensures clear title, but it also:

- Covers undischarged liens or mortgages that may go back many years, or have been lost in the land registry system

- Covers fraudulent mortgages placed on a property unbeknownst to the owner. The average case of real estate title fraud costs the victim $300,000; the average credit card fraud in Canada is $1,200.

A criminal will typically do one of the following:

- Forge property transfer deed

- Register title to the property in his or her name

- Forge a discharge of the home's existing mortgage and then borrow against clear title

- Cover up unpaid taxes or utilities

- Hide encroachments on a neighbouring property, or build problematic renos outside municipal bylaw or setback requirements

- It also provides for any changes to a property where appropriate permits are not obtained. Situations like these can cost considerable amounts of money to rectify, even before the legal bills begin to pile up. read more

A Very Strange Divergence in Title Insurance

This is one of the few times I'd like to have ready access to analyst reports. I am completely boggled by the massive divergence among the two title insurance companies we own. While both faltered badly once interest rates started to rise (hurting mortgage applications and by transitive theory, titles), First American (FAF) has fought back to its 200 day moving average while Fidelity National Financial (FNF) has continued down at a nearly 45 degree angle, even as Treasuries have rallied here the past 5 sessions buffering the rise in mortgage rates.

Granted, the latter is more a pure play on title insurance, but this is one serious variance. There must be something going on specific to FNF and "someone" obviously knows "something" - but I definitely do not know what it is. On valuation I'd like to add here, even if its a very busted chart, but it just continued to falter almost on a daily basis and make new lows. In fact, it is lower than it was at any point in the Jan-early March 2009 selloff. I don't think almost any other stocks can make that claim.

Disclosure: Long both in fund, scratching head furtively