You may have little or no interaction with your title insurance agent until you see them at closing. But don’t misunderstand their silence for disengagement. Their role is crucial and their expertise, or lack of it, can make or break your financial well being. To clarify the role of title insurance we sat down to talk with escrow officer Pearl Carlson of Cottonwood Title. Here are her thoughts on why your title insurance matters.
A Neutral Third Party to Protect You
Simply put, the process of searching title and obtaining title insurance is the legal validation that what you are buying is property and not lawsuits. Your title agent is a neutral third party whose role is to assist you and the other parties to your transaction. Their job is to provide a title policy ensuring that your title is valid and free from liens and encumbrances, and to file key transaction documents. On a closing statement you will typically see three line-items that involve a title charge:
Escrow Settlement/Closing Fees
Lender’s Policy Title Insurance (usually paid by borrower)
Owner’s Policy Title Insurance (usually paid by seller)
Title Search and Report
Your title report will not be the most riveting read, but it is the most important of your purchase. It lays out the legal, nitty-gritty details of your purchase: location, boundaries, easements, and access. Liens, or debts owed by current or previous property owners, are identified in a preliminary report called the title commitment. Clearance of liens will need to happen before issuance of title insurance and transfer of title. Property tax, contractor, HOA, divorce, and utility are common property liens.
In Carlson’s experience, “You’d be surprised how often things come up in a title search. Maybe the past title insurer missed something. Or a property has been in the family for years and they can’t track down the essential title or trust documents…We are reading contracts and county records, double checking to make sure the owners don’t have aliases or other names. Sometimes we go back generations to make sure titles are clear.”
The purpose of this type of title insurance is to protect your lender from title disputes. A lender will not provide loan funds before you purchase the protection of a title insurance policy. And a title insurer will require that all liens are paid before they issue insurance.
Each individual state regulates the cost of title insurance. In Utah, title insurance rates are filed with and regulated by the Utah Department of Insurance. Different underwriters may have different rates, and so one advantage of an independent title agent such as Cottonwood Title is that they can compare the rates of their various underwriters for you.
An owner’s title insurance policy protects you from someone showing up and claiming a lien on your property. Your lender is covered, and this policy ensures that you are covered as well. This insurance generally covers undiscovered liens and additional coverage is available to include fence line disputes and builder liens on new construction.
Wire Transfer Protection
Real estate wire fraud has increased dramatically over the last couple of years. Carlson has seen fraudsters hack into bank servers, duplicate email addresses and send out false wiring instructions. She advises that every buyer follow “Safe Wire” protocols for transferring funds. This should include a hard copy of wire instructions from your title company. “If you receive an email that says, ‘wire instructions have changed’ you should immediately contact your bank and title company.”
The Devil in the Details
Discovering title defects is like finding a needle in a haystack. Using a reputable title insurance agent who is detail oriented and has the resources and manpower to do the research can save you thousands, possibly hundreds of thousands, of dollars. Carlson has been a title agent for almost twenty years, and during this time has learned that “every single file is different; just when you think a title is clear, something comes up.”
Her sound advice: “Choose a company that is reputable and will protect your funds.”
TITLE BEST PRACTICES
Keep your trust and title documents in a safe place.
Digitally scan all trusts and titles, especially if they are older than 20 years.
Scan every single page of the trust or title.
If you can’t find your documents, contact an attorney as soon as possible for advice on how to proceed.