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What is Title Insurance?

Title insurance is the same as any other type of insurance policy. It is a contract of indemnity – that is, if the insured under the policy suffers a loss due to an insured risk, then the insurance company indemnifies the insured for that loss. The risks that are insured depend upon what type of policy is being issued. A lender's policy insures that the lender has first and best lien on the property. An owner's policy insures that the owner has good and marketable title to the property.

In Ohio a policy of title insurance must be based upon an examination of the title to the property. Before issuing a commitment for insurance the title agent examines the title to the property to determine if the seller/owner has good title and to identify any encumbrances, such as mortgages, liens, or easements. The commitment sets out what the agent has found and the requirements that must be met to issue the policy.

What Does Title Insurance Cost?

The policy is issued upon payment of a one-time premium. The premiums are based upon the risks insured and the amount of the purchase price and/or the loan involved. The owner's policy insures that the owner has good and marketable title and the insurance continues to insure that owner even after the owner sells the property. This protects the owner in giving a general warranty deed for the property as required by most real estate purchase contracts. The risk on a lender's policy lasts as long as the mortgage is in effect, which may be thirty years, but is more likely three or four years. Therefore, the premium for a lender's policy is less that that of an owner's policy. If both policies are issued at the same time, then the premium for a lender's policy is just $100.00, regardless of the loan amount. This is because the owner's coverage is so much more extensive than the lender's policy and the insurance company is already on the hook for any loss. In Ohio, the Insurance Rating Bureau sets the premiums and all companies must charge the same premiums for the coverage. Typically, most lenders require buyer/borrowers to pay for the lender’s loan policy of title insurance. As the lender’s policy is a required cost to the buyer as a condition of loan approval, the only additional cost to the buyer, then, is the cost to insure himself as the owner. The following example illustrates this.

The buyer is purchasing a house for $140,000.00 and putting 20% down. The lender will require the buyer to pay the cost of the loan policy of $442.00. The cost of an owner’s policy in the amount of the purchase price is $805.00. If both policies are issued simultaneously, the cost is the premium for the owner’s policy plus $100.00 or $905.00. Thus, the additional cost for the owner’s policy is the difference between $870.00 and $442.00 or $463.00. The buyer gets title insurance protection for the full purchase price and the lender get protection for the full loan amount.

What are the Advantages of Title Insurance?

There are several advantages to title insurance over other forms of title evidence. When an attorney issues an opinion of title, the contractual basis is professional malpractice. If a problem is discovered, the issue will become whether the attorney failed to exercise ordinary care in examining the title. This is also subject to the statute of limitations for professional malpractice and whether or not the attorney has insurance or sufficient funds to cover the loss.

Title insurance covers matters that an attorney opinion cannot cover, for example, fraudulently executed deeds. An attorney examining the records can only rely upon the documents as recorded. If a deed is later found to be fraudulent, the attorney has not committed malpractice. Title insurance, however, can insure against fraud and many other matters, which an attorney cannot. Unreleased mortgages seem to be a fact of life nowadays. An attorney can opine only as to what the records show. Title insurance can provide affirmative coverage for unreleased mortgages. The same is true with encroachments of set back lines and other survey matters. Another feature of title insurance is that the coverage includes attorney’s fees in defending any action resulting from a title defect.

Title insurance is issued by companies that must be licensed and regulated by the State and must carry reserves for losses. For the most part, the title insurance companies are large multi-state companies that are well recognized in the secondary mortgage market. This is another feature that helps in the lending process.

What Should Be Considered?

The decision to buy title insurance is like any other insurance, the prospective insured must determine how much risk that he or she is willing to take on. If a purchaser is willing to accept a general warranty deed from the seller with the sole recourse being a suit against the seller if there is a problem, then the purchaser may choose not to purchase the insurance.

In making the consideration to purchase or not, it is important to remember that the law will not protect parties who do not protect themselves. For example, if the lender gets a lender’s policy, but the buyer does not get a policy and there is a title problem, only the lender is protected. Case law has held that the buyer cannot rely upon someone else’s insurance policy for protection.

An even greater concern is the sad state of real estate titles. Twenty years ago, attorneys handled and oversaw real estate transactions. Attorneys checked the titles, and prepared the documents. Attorneys closed the transactions. Nevertheless, the pressure to reduce costs has pushed attorneys out of the equation to the point that many title agencies operate without the benefit of legal oversight. More and more, it is lesser-qualified lay people that are handling the largest purchase that a person may make in their life. As a result, the chance of a title defect arising is greater. There have been numerous cases where the deed had the wrong property description, or the deed was not properly executed by seller with a power of attorney. This list is growing and will continue to grow.

If there is a title problem, the buyer can usually sue the seller for breach of the general warranty covenants in the deed. That is, if the seller can be found and has the money to fix the problem. Title insurance provides legal defense on title claims and with the escalating costs of legal fees, the one-time premium for insurance is minimal.

Do I need a certified check for closing?

Yes, exceptions are made for minimal funds needed to close. The certified check should be made out to you and endorsed at closing.

Do we have closing location options?

At StoneBridge, we pride ourselves on providing first class service in a comfortable, professional setting. For your convience, however, we can close at the lender's or Realtor's® office.


What does it mean to conduct an "escrow closing?"

Layman's Terms:

The Escrow Agent serves as the neutral "stake holder" and the communication link to all parties in the transaction. The Escrow Agent holds all documents and money until all conditions of the sale are completed, at which time the Escrow Agent will impartially carry out the written instructions given by the principals (the seller, the buyer and the lender) in the transaction.

Ohio Supreme Court Definition:

"An escrow in Ohio, as between grantor and grantee of real estate, is witnessed by a written instrument known as an escrow agreement, delivered by mutual consent of both parties to a third party, denominated the depositary or escrow agent, in which instrument certain conditions are imposed by both grantor and grantee, which conditions the depositary or escrow agent, by the acceptance and retention of the escrow agreement, agrees to observe and obey." SQUIRE v. BRANCIFORTI, 131 Ohio St. 344, 2 N.E.2d 878 (1936)

Ohio Revised Code Definition:

Section 1349.20 (D) states: "Escrow or closing agent" means a person who controls and effects, in an escrow transaction, the delivery described in division (E) of this section, but excludes a federally insured bank, savings and loan association, credit union, or savings bank that makes a loan as part of a residential real property transaction and excludes a real estate broker who, in a fiduciary capacity, receives and deposits, in an account maintained under division (A)(26) of section 4735.18 of the Revised Code, cash, funds, checks, or negotiable instruments for earnest money or good faith or other purposes.

(E) "Escrow transaction" means a transaction in which a person, for the purpose of effecting and closing the sale, purchase, exchange, transfer, encumbrance, or lease of an interest in residential real property to another person, provides a written instrument or document, money, negotiable instrument, check, evidence of title to real property, or any other thing of value to an escrow or closing agent, to be held by the agent until a specified event occurs or until the performance of a prescribed condition, when it is to be delivered to a specific person by the agent in compliance with applicable instructions, whether by filing such written instrument or document in the public records or by direct tender to the appropriate person.

Who are the parties in an escrow closing?

Who are the parties in an escrow closing? In general, the buyers, sellers and lenders are parties to the escrow. The brokers and agents are not parties to the escrow agreement, just as they are not parties to the sales contract. Since Realtors® have a fiduciary duty to their client, they have a strong interest in making sure that the transaction is completed in a manner that is in the best interest of their client.

As you will see in the following information, the closing agent in a typical round table closing does not have a written contractual duty to either the buyer or the seller (unless someone buys an owner’s title insurance policy). In an escrow closing, the closing agent is a contractually defined fiduciary to both the buyer and the seller.

How does an escrow closing differ from a round table closing?

Round table closings are local custom

Historically, home lending in our area was done through local savings and loan institutions. In fact, at one time there were as many financial institutions in Hamilton County as there were in the rest of the state. The loans were not sold on the secondary market so the paperwork was minimal. Each institution had an attorney that handled the closings. There were no federal statutes, such as RESPA or TIL.

With minimal paperwork and an attorney handling the transaction, all parties felt comfortable sitting down at the table and closing the deal and passing out checks.

Those days are gone. The paperwork has increased immensely. Generally, attorneys are no longer part of the process (too costly). Now secondary market investors with very stringent closing requirements dictate the entire process.

Closing agent is a facilitator with no set duties to parties

Title companies in our area approach the closing as a facilitator for the buyer and seller. In this approach, they are not acting as fiduciary of buyer or seller, just facilitating the transaction between them. As a facilitator, if something is not done correctly in the transaction, e.g. taxes not prorated, the closing agent is not liable. The closing agent may not even be found liable if deed is not recorded.

Closing agent may have contractual duties to lender

Closing agents are generally required to sign the closing instructions agreeing to be liable to the lender to follow those instructions. This contract binds the closing agent for liability to the lender, but third parties to that contract, i.e. buyer and seller, may not rely legally on that agreement.

Costs are kept down by volume and less qualified personnel

There is always pressure to keep the costs down. No one wants to pay the costs for attorneys to be involved. Title companies charge less now than they did 10 years ago and generally the attorney oversight is minimal at best.

Timing

Generally, a typical round table closing takes 30 to 45 days from the time the contract to purchase is executed. This timeframe is the same in an escrow closing – assuming the transaction is typical. However, either an escrow closing or a round table closing may be delayed by loan procedures, title problems or contractual disputes between the parties to the contract to purchase.

What are the advantages and disadvantages of an escrow closing?

Advantages:


Disadvantages:


How does an escrow closing work?

First, the buyer and seller are provided an addendum to their Contract to Purchase where they agree to the escrow closing. A sample is attached. Each settlement company may provide its own forms, or CABR may want to create and disseminate its own form or provide for this provision in the form Contract to Purchase.

When an escrow file is opened, the matter proceeds on three separate tracks.

Track 1 - Contract and its contingencies


Track 2 - Title exam and clearing


Track 3 - Loan document processing and clearing conditions


Closing the transactions:


What does the escrow officer do?