WHY YOU NEED TITLE INSURANCE

You are in your late twenties, post college, ambitious, recently married and looking to start the next cornerstone chapter in your life; buying a home. For many first time property buyers the experience can be unknown territory. One of the key concepts that a first time buyer should become familiar with is title insurance.

What is it? Why do you need it? What are the benefits of having it?

WHAT IS TITLE?

Title is what gives you ownership of a property. As a buyer you want a clear or clean title — one that doesn’t have liens for unpaid taxes against it, or claims of ownership by a distant relative, or a surprise easement through the backyard to reach power lines or other utilities.

THE TITLE PROCESS

 You have entered into a Contract with a Seller to purchase your house.  What happens next?

The Title Search:  First, a title search is conducted. Public records are examined manually or by computer or both. It depends on how pertinent records are kept in your area. The searcher looks at deeds, wills, and trusts, tracing the history of the property back many, many years. Among the important questions is whether all past mortgages and liens have been paid. Does anyone hold an easement? Are there any pending legal actions?

But what if the title search misses something? This could happen. Buyers have even lost their houses because of clouded ownership due to some past problem that wasn’t discovered.

Title Insurance: The way to avoid losing your home is to buy title insurance, which is available from title insurance companies, title agents, or, in some states, attorneys.

Title insurance is a one-time, up-front investment with rates based on the purchase price of your home and the type of policy you buy.  The policy protects you by making the insurance company liable for most claims against your ownership. If a critical document was overlooked during the title search and you actually lose the house, you’ll likely receive damages — but only if you bought an owner’s title insurance policy at closing.

Make sure you understand the policy you’re buying — what it covers and what’s excluded. The owner’s policy should cover your full sales price. If you want a policy that covers the value of your home as it increases, ask about adding an inflation rider.

Your lender wants a policy, too. He or she won’t even loan you money unless you buy a separate lender’s title insurance policy to cover the bank’s interest in your property. The lender’s policy should be for the amount of the mortgage.

How to Take Title:  Many home buyers, especially first-time buyers, are at the closing ceremony signing the mysterious documents when the closing agent asks how they want to take title to the property — sole owner, joint tenancy, tenants-in-common, etc..

Don’t let your eyes glaze over. This really is important. There are tax and estate considerations to ponder prior to deciding.

Here are four of the most common ways to take title:

Sole owner – An unmarried person buying a house alone has the easiest task. Title is taken as a sole owner in the individual’s name.

Joint tenancy with right of survivorship – If unmarried individuals choose to take title with joint tenancy, each has the right of survivorship. If a partner dies, full ownership goes to the survivor. There are tax advantages for the survivor as well.

Tenants-in-common – When two or more individuals buy a home together as tenants-in-common, they are partners who may own unequal shares and who can sell their shares of ownership independently.

Tenancy by the Entirety – Tenancy by the entirety is a type of shared ownership of property recognized in Pennsylvania, available only to married couples.  Much like in a joint tenancy, spouses who own property as tenants by the entirety each own an undivided interest in the property, each has full rights to occupy and use it and has a right of survivorship.  Tenants by the entirety also cannot transfer their interest in the property without the consent of the other spouse.

Decide before you attend the closing how you wish to take title to the property. Consult an accountant, real estate attorney, or estate planner to learn the advantages and disadvantages of each type of ownership.

WHAT HAPPENS ON CLOSING DAY?

Recording the Deed:  When you have title to your property, you own it. But the deed is the written document used to transfer the title from seller to buyer. It is only when the deed is recorded at the appropriate county office that your ownership is official.

Here’s what happens: on the day of closing, buyer and seller sign numerous documents and the closing agent disburses the money. Then, depending on the time of day and practices in your area, someone from the title company takes the deed and other documents that must be recorded to the county office. This is usually done first thing in the morning or at the end of the business day. A recording fee is paid.

The county recorder assigns each document a number and records the time of entry to the minute. A copy is made for the county file. Your real estate transaction is now part of the public record.