Why do you need title Insurance?
To protect possibly the most important investment you’ll ever make – the investment in real estate.
A lender goes to great lengths to minimize the risk of lending money for the purchase of real estate. First, credit is checked as an indication of the borrower’s ability to repay the loan.
Then, the lender seeks assurance that the quality of the title to the property to be acquired and which will be pledged as security for the loan is satisfactory. The lender does this by obtaining a loan policy of title insurance.
The Loan Policy Does Not Protect The Borrower
The loan policy protects the lender against loss due to unknown title defects. It also protects the lender’s interest from certain matters which may exist, but may not be known at the time of the sale.
But, this policy only protects the lender’s interest. It does not protect the borrower. That is why a real estate purchaser needs an owner’s policy, which can be issued at the same time as the loan policy, usually for a nominal one-time fee.
What are the different types of deeds available?
General Warranty Deed
This is the most common form of ownership in Ohio. If there is just one buyer, title will upon death pass to such owner’s heirs unless otherwise provided for by the owner’s will. If there is more than one buyer, then a Tenancy-in-Common among the owners is created, which means that each buyer owns an undivided interest in the property. Upon the death of one of the owners, title to their undivided part interest will pass to that owner’s heirs unless otherwise provided for by the owner’s will.
The seller warrants the title to be free and clear except as stated in the deed. The seller takes on responsibility for the soundness of the entire chain of title.
Although seller’s warranties are desirable, title insurance has reduced their importance. Buyers and lenders generally rely on title insurance to protect the investment. Therefore, title insurance is also a benefit to the seller as it may reduce legal exposure if old title defects arise.
Limited Warranty Deed
Under special circumstances the seller will only warrant the title as to the period that s/he held title to the property and is NOT RESPONSIBLE for matters previous the seller’s acquisition.
Often used on commercial transactions where buyer and seller agree to depend on title insurance for protection but require seller to account, if necessary, for matters occurring during the sellers time of ownership.
Also may be used when the seller is not in a position to make warranties as to the entire history of title. An example would be title taken by foreclosure (i.e. Sheriff’s sale), in settlement of a debt, etc.
Otherwise all other provisions are the same as a General Warranty Deed.
Warranty deed creating Tenants In Common With The Right Of Survivorship.
This is used when two or more persons are the buyers. Upon the death of one of the owners the interest is not considered an asset of the estate but the title to the interest transfers “by contract” to the survivor(s). Such interest, however, must be considered in the decedent’s estate for Ohio and Federal Estate Tax purposes as if it was an asset of the estate.
Quit Claim Deed
This is the simplest form of deed as it only coveys whatever interest a seller owns or may own, and no warranties are expressed or implied.
This creates tenancy-in-common if more than one buyer is involved and is similar in this respect to a general warranty deed.
The buyer has no recourse against the seller for any defects in title. As a result title insurance is advisable whenever a buyer accepts a Quit Claim Deed.
Special Purpose Deeds
Other types of deeds are necessary under certain situations and their application is limited. Such special purpose deeds include Sheriff’s Deed (foreclosure), Trustee’s Deed (bankruptcy), Auditor’s Deed (tax sale), Guardian’s Deed (Probate Court), and the Executor and Administrator’s Deed (Probate Court).
As we always say, for further explanation or advice as to the use or preparation of any material on this page, it is strongly suggested that you consult an attorney competent in real estate law.
Transfer on Death Deeds (Effective August 29, 2000)
A Transfer on Death deed (TOD) creates a present interest in either a sole owner or a tenant in common as grantee, plus it creates a “transfer on death” interest in a specifically named beneficiary or beneficiaries. This type of deed allows the owner to convey property upon his/her death by avoiding using a certificate of transfer or having an executor convey the property through probate.
What is the danger of loss?
If the lender has title insurance protection and the owner does not, what possible danger of loss exists?
As an example, assume real estate was purchased for $100,000. A down payment of $20,000 is made, and a lender holds an $80,000 mortgage lien, or beneficial interest. The lender acquires title insurance protecting the lender’s interest up to $80,000. But the purchaser’s down payment of $20,000 is not covered.
What if some matter arises affecting the past ownership of the property? The title insurance company would defend and protect the interest of the lender. The purchaser, however, would have to assume the financial burden of his or her own legal defense. If the defense is not successful, the result could be a total loss of title.
The title insurance company pays the lender’s loss and is entitled to take an assignment of the borrower’s debt. The purchaser loses the down payment, other equity in the property that may have accumulated, and the property. And the balance on the note is still due!
How can there be a title defect if the title has been searched and a loan policy issued?
Title insurance is issued after a careful examination of copies of the public records. But even the most thorough search cannot absolutely assure that no title hazards are present, despite the knowledge and experience of professional title examiners. In addition to matters shown by public records, other title problems may exist that cannot be disclosed in a search.
What protection does title insurance provide against defects and hidden risks?
Title insurance will pay for defending against any lawsuit attacking the title as insured, and will either clear up title problems or pay the insured’s losses. For a one-time premium, an owner’s title insurance policy remains in effect as long as the insured, or the insured’s heirs, retain an interest in the property, or have any obligations under a warranty in any conveyance of it. Owner’s title insurance, issued simultaneously with a loan policy, is the best title insurance value a property owner can get.
Here are just a few of the most common hidden risks that can cause loss of title or create an encumbrance on title:
- False impersonation of the true owner of the property
- Forged deeds, releases or wills
- Undisclosed or missing heirs
- Instruments executed under invalid or expired power of attorney
- Mistakes in recording legal documents
- Misinterpretations of wills
- Deeds by persons of unsound mind
- Deeds by minors
- Deeds by persons supposedly single, but in fact married
- Liens for unpaid estate, inheritance, income or gift taxes
I received a tax bill, am I responsible to pay it?
Real Estate Tax bills are mailed out twice a year, usually in late December and in June to the tax mailing address of record. Our Treasurer typically mails the first tax bill to the property owner even if the title company specifies a lender for tax mailing purposes. Therefore, you could receive a tax bill when your lender has an escrow account to pay your tax bill. In that case, please forward your tax bill to your lender as quickly as possible and be sure to follow up with a telephone call to your lender to ensure that the bill will be paid on time.
If you do not have an escrow account with your lender, please refer to your settlement statement and the proration of taxes. You would most likely have received a tax proration credit from the seller through the settlement, depending on the terms of your purchase agreement. Therefore, even though the tax period may have been for a time when you did not own the property, you will still be responsible to pay the bill because you are now the owner of the property of record.
I am planning on refinancing, are there any deductions you company can offer in fees?
Yes. We can update your title search which could save you approximately $110.00 from our standard title search fee, and you may also be entitled to such things as a refinance rate on your title premium which could save as much as 40% from the standard title premium rates. You may also be able to save on the location survey, if your lender will accept an affidavit. We are very competitive in our prices. Please call us to discuss your situation.
I purchased a title policy when I purchased my house, why should another policy need to be purchased?
When refinancing, building a house, or selling a house, there are new interests involved that typically will require title insurance. When a new policy is issued, the records are researched to determine what liens are recorded, as well as the status of the property taxes.
Do I have to have my original deed to sell my property?
No. Unlike automobile titles, deeds to real property are prepared when a property is being conveyed. Therefore, it is advisable to keep your original deeds, however, it is not required to furnish when you sell. If you do lose your original deed, a certified copy can be obtained from the recorder of the county in which your deed is recorded.
What is in Title Search?
You’ve decided to purchase a home and hope to take possession as soon as possible. The terms have been agreed upon and all the financial arrangements have been made. But there’s one important detail remaining. Before the transaction can close, a title search must be made.
The most accurate description of title is a bundle of rights in real property. A title search is the process of determining from the public record just what these rights are and who owns them.
A title search is a means of determining that the person who is selling the property really has the right to sell it, and that the buyer is getting all the rights to the property (title) that he or she is paying for.
The search process can be undertaken by the title company in those jurisdictions where the company maintains offices. In some areas, however, searches are made only by practicing attorneys. However the search is performed, in most real estate transactions today a title insurance policy is purchased to assure the buyer that he or she has purchased a valid title.
In those transactions where title insurance is involved, the title company must determine insurability of the title as part of the search process. This leads to the issuance of a title policy, which insures the existence or non-existence of rights to the property.
The title insurance company will, at its own expense, defend the title and will pay losses within the coverage of the policy if they occur.
But what exactly, is involved in a title search?
Chain of Title
This is simply a history of the ownership of a particular piece of property, telling who bought it and sold it, and when. The information may be derived from public records — usually a County Clerk’s or Recorder’s Office — or obtained from title plants privately owned and maintained by title companies. There are great varieties of such plants — index cards, punch cards, tract books, even sophisticated computerized plants. However, they all contain essentially the same information from which the history of the title may be secured.
This is a search to determine the present status of general real estate taxes against the property. The tax search will reveal if taxes are current or whether any taxes are past due and unpaid from previous years. In addition, the tax search will indicate the existence of any special assessments against the land and, if so, whether or not these assessments are current or past due.
A due and unpaid tax or special assessment is a prior lien or claim on the property above all others. If a buyer purchases property with unpaid and past due taxes or assessments against it, he or she is likely to find a government body — the village, county or state — placing the property up for sale to pay those taxes or assessments. A tax search reveals the status of the taxes. Title insurance protects the buyer against loss from unpaid and past due taxes and assessments.
Report on Possession
MCTA sends inspectors to look at the property to verify the lot size, check the location of improvements, look for evidence of easements that are not shown of record and check on who is living there.
The purpose of this is to supplement the information learned from the title search. In the eyes of the law, any buyer of real estate is assumed to have notice of all matters properly shown in the public records as to that real estate as well as any information that an actual inspection may reveal.
If the inspector detects an unrecorded easement or other evidence of outstanding rights that could affect the owner’s title and possibly the value and intended use, the company tells the buyer of these things before he or she closes the purchase. Those matters must then either be disposed of or shown as exceptions in the title insurance policy. Sometimes when an acceptable survey and appropriate affidavits are received, an inspection will not be made.
Judgment and Name Search
One of the most important parts of the title search is to determine if there are any unsatisfied judgments against the seller or previous owners which were in existence while they owned the title. A judgment is a general lien against the debtor’s real estate and constitutes security for any money owed under the judgment. The real estate can be sold to satisfy the judgment.
It is extremely important to be sure that a title is not subject to judgments against the seller or previous owners. Title insurance provides this protection. A judgment against a person named Smith may affect the title of a seller named Smith, depending on whether or not they are the same person. So all possible variations of the name must be examined.
For example, the name Smith might be spelled Schmidt, Schmid, Schmidtt, Schmidz, Schmied, Schmiedt, Smid, Smythe, and so on. The name Nichols can be spelled 73 different ways, from Nachols to Nychals. The task is to determine which of these applies to the owner in question. First names have to be checked, too. There are 25 foreign forms of John, including Johann, Jehan, Hans, Shaun, Gudi, and Efom.
Rights established by judgment decrees, unpaid federal income taxes, and mechanic’s liens all may be prior claims on the property, ahead of the buyer’s or lender’s rights. If a judgment is discovered that constitutes a defect in the title, it is pointed out, and the seller must then eliminate it before the title of the new buyer can be insured free and clear of that judgment.
When these searches have been completed, the title company issues a commitment to insure, stating the conditions under which it will insure the title. The buyer and seller and the mortgage lender can proceed with the closing of the transaction after clearing up any defects in the title which may have been uncovered by the search and examination.
The mortgage lender is as concerned as the buyer about the quality of the title because the property is to be security for the new mortgage loan. The mortgage lender requires assurance that it has a valid first (or another acceptable priority) mortgage lien on the property. This is not only common sense, but generally is a legal requirement of regulated mortgage lenders.
The lender’s title insurance, however, doesn’t protect the new buyer of the property. Although the land is the same, the interest of the buyer and the interest of the lender are very different. The provisions of a lender’s title insurance policy are very different from those of a buyer’s policy, so the buyer should obtain his own policy, often issued simultaneously with the lender’s policy.
What is a 1031 "Like-Kind" exchange?
Section 1031 of the tax code provides one of the best strategies for the deferral of capital gain taxes which would ordinarily arise from the sale of investment property. Exchanging defers the realization of the capital gain tax, leaving the property owner with substantially more proceeds to reinvest in a replacement property.
To learn more about exchanges visit Transfer Exchange, Inc.
What Happens in Escrow?
What is an Escrow and Why is it Needed?
An escrow is an arrangement in which a disinterested third party holds legal documents and funds on behalf of a buyer and seller, and distributes them according to the purchase agreement, the escrow holder’s “Standard Conditions and Acceptance of Escrow,” and any mutually consistent instructions from buyer’s seller’s.
People buying and selling real estate often open an escrow for their protection and convenience. The buyer can instruct the escrow holder to disburse the purchase price only upon the satisfaction of certain prerequisites and conditions. The seller can instruct the escrow holder to retain possession of the deed to the buyer until the seller’s requirements, including receipt of the purchase price, are met. Both rely on the escrow holder to carry out faithfully their mutually consistent instructions relating to the transaction and to advise them if any of their instructions are not mutually consistent or cannot be carried out.
An escrow service is convenient for the buyer and seller because both can move forward separately but simultaneously in providing inspections, reports, loan commitments and funds, deeds, and many other items, using the escrow holder as the central depositing point. If the instructions from all parties to an escrow are clearly drafted, fully detailed, and mutually consistent, the escrow holder can take many actions on their behalf without further consultation. This saves much time and facilitates the closing of the transaction. There are also many outside factors that only an experienced escrow officer is generally aware of. Such as City, State, and Federal, codes, regulations, and requirements.
Who May Hold Escrows?
The escrow holder may be any disinterested third party (although some states require that certain escrow holders be licensed).
There are two important reasons for selecting an established title company, bank, S & L, independent escrow firm, or an attorney. One is that real estate transactions require a tremendous amount of technical knowledge and experience to be handled smoothly. The other is that the escrow holder will generally be responsible for safeguarding and properly distributing the purchase price.
Escrow officers with established firms generally are experienced and trained in real estate procedures, title insurance, taxes, deeds, and insurance.
An escrow officer must remain completely impartial throughout the escrow process; he or she will normally adopt a courteous but rather formal manned when dealing with parties to the escrow, keeping conversation to the matters of the escrow. This formal behavior is meant for the benefit of all concerned, since the escrow officer must follow the instructions of both parties without bias.
Typical instructions are written documents, signed by the parties giving them, which direct the escrow officer in the specific steps to be completed so the escrow may be closed.
Typical Instructions Would Include the Following:
- The method by which the escrow holder is to receive and hold the purchase price to be paid by the buyer.
- The conditions under which a lapse of time or breach of purchase contract provision will terminate the escrow without a closing.
- The instruction and authorization for the escrow holder to disburse funds for recording fees, title insurance policies, real estate commissions, and any other closing costs incurred through the escrow.
- Instructions as to the proration of insurance and taxes.
- Instruction to the escrow holder on the payment of prior liens and charges against the property and distribution of the net sale proceeds.
- Since the escrow holder can follow only the instructions as stated, it is extremely important that the instructions be stated clearly and be complete in all details.
Closing the Escrow
Once all the terms and conditions of the instructions of both parties have been fulfilled, and all closing conditions are satisfied, the escrow is closed and the safe and accurate transfer of property and money has been accomplished.
Division of Charges
The method of dividing the charges for the services performed through escrow or as a result thereof varies from place to place. The fees and service charges to be divided might include, for example, the title insurance policy premium, escrow fee, any transfer taxes, recordation fees, and cost in connection with any loan being obtained. Unless there is some special agreement between the buyer and the seller as to how these charges are to be paid, local custom will generally be followed in drafting the instructions to the escrow holder as to how they are to be divided.