What You Need to Know: Title and Insurance

The following information is supplied for informational purposes and should not be relied upon as legal definitions.

Before you reach the closing day, you will want to make a decision as to how you will “hold title” to the property. This decision has legal, tax and estate planning ramifications. Therefore, it may be prudent to consult an attorney or certified public accountant (CPA).

Buying Alone

• Sole Ownership
  • A single individual who has not been legally married
  • An unmarried individual who was married and is now legally divorced
  • A married individual who wishes to acquire title in his or her name alone. At the time of closing, the spouse of the buyer will be required to specifically disclaim or relinquish his or her right, title and interest to the property
• Living Trust
  A living trust is created while an individual is alive and gives the individual control of the distribution of his or her estate. The individual transfers ownership of his or her property and assets into the trust.

Buying with Others

• Tenancy in Common
  Enables each partner in the property to sell, lease or will to his/her heirs that share of the property belonging to him/her.
  • Who can take title? Any number of individuals.
  • Ownership Division: Any number of interests, equal or unequal (ie. different ownership percentages).
  • Who holds title? A separate legal title to his undivided interest is held by each co-owner.
  • Possession: Equal right of possession.
• Joint Tenancy
  Property owned by multiple individuals where if one of the owners dies, the remaining owners acquire the share of the deceased owner automatically.
  • Who can take title? Any number of individuals.
  • Ownership Division: Interests cannot be divided.
  • Who holds title? There is only one title to the whole property.
  • Possession: Equal right of possession.
• Tenants by the Entirety
  Property owned equally between a husband and wife. Each must sign all agreements and documents of transfer.
  • Who can take title? Only a husband and wife.
  • Ownership Division: Interests are equal.
  • Who holds title? Property is titled in both spouses name.
  • Possession: Equal right of possession.

Additional Ways to Hold Title

• Corporation
  A corporation is a legal entity, created under state law, consisting of one or more shareholders but regarded under law as having essentially the same as those of an individual. The entity has continuous existence until it is dissolved according to legal procedures. Land owned by a corporation cannot be attached for personal debts or judgments rendered against any of its shareholders.
• A Partnership
  A partnership is an association of two or more persons who can carry on business for profit. A partnership may hold title to real property in the name of the partnership with partners having an equal or an unequal interest in the property.
• A Trust
  A trust is an arrangement whereby legal title to property is transferred by the grantor (or trustor) to a person called a trustee, to be held and managed by that person for the benefit of the people specified in the trust agreement, called beneficiaries.

Title Insurance = Peace of Mind

Purchasing a home is probably the single biggest investment you will ever make. Before closing on the house, you’ll want to know that no other individual or entity has a right, lien or claim to the property.

For a modest, one-time title insurance premium, you will receive continuous title insurance protection in an amount equal to the purchase price of the property or its current market value. This premium typically includes your “owners” policy as well as the “lenders” policy.

One of the marked advantages of title insurance is that prior to a policy being issued, the title insurance company completes extensive research into relevant public records, maps and documents to trace ownership of the property and determine if anyone other than you has an interest in the property. Through its research, the title insurance company can usually identify any title problems that may arise and have these problems cleared-up prior to closing.

Homeowner’s Insurance Policy

A homeowner’s insurance policy is a package policy that combines more than one type of insurance coverage in a single policy. There are four types of coverages that are contained in the homeowners policy: dwelling and personal property, personal liability, medical payments, and additional living expenses. Homeowner’s insurance, as the name suggests, protects you from damage or loss to your home or the property in it.

Remember that flood insurance and earthquake damage are not covered by a standard homeowners policy. If you buy a house in a flood-prone area, you’ll have to pay for a flood insurance policy that costs an average of $400 a year. The Federal Emergency Management Agency provides useful information on flood insurance on its website at www.fema.gov. A separate earthquake policy is available from most insurance companies. The cost of the coverage will depend on the likelihood of earthquakes in your area.

Private Mortgage Insurance (PMI)

Private mortgage insurance (PMI) and government mortgage insurance protect the lender against default and enable the lender to make a loan which the lender considers a higher risk. Lenders often require mortgage insurance for loans where the down payment is less than 20 percent of the sales price. You may be billed monthly, annually, by an initial lump sum, or some combination of these practices for your mortgage insurance premium. Mortgage insurance should not be confused with mortgage life, credit life or disability insurance, which protect you and are designed to pay off a mortgage in the event of your death or disability.

You may also encounter “lender paid” mortgage insurance (“LPMI”). Under LPMI plans, the lender purchases the mortgage insurance and pays the premiums to the insurer. The lender will increase your interest rate to pay for the premiums — but LPMI may reduce your settlement costs. You cannot cancel LPMI or government mortgage insurance during the life of your loan. However, it may be possible to cancel private mortgage insurance at some point, such as when your loan balance is reduced to a certain amount. Before you commit to paying for mortgage insurance, ask us about the specific requirements for cancellation in your case.

Title Insurance

Title insurance is usually required by the lender to protect the lender against loss resulting from claims by others against your new home. In some states, attorneys offer title insurance as part of their services in examining title and providing a title opinion. The attorney’s fee may include the title insurance premium. In other states, a title insurance company or title agent directly provides the title insurance.

A lender’s title insurance policy does not protect you. Neither does the prior owners policy. If you want to protect yourself from claims by others against your new home, you will need an Owner’s Title Policy. When a claim does occur, it can be financially devastating to an owner who is uninsured. If you buy an owner’s policy, it is usually much less expensive if you buy it at the same time and with the same insurer as the lender’s policy.

To save money on title insurance, compare rates among various title insurance companies. Ask what services and limitations on coverage are provided under each policy so that you can decide whether coverage purchased at a higher rate may be better for your needs. However, in many states, title insurance premium rates are established by the state and may not be negotiable. If you are buying a home which has changed hands within the last several years, ask your title company about a “reissue rate,” which would be cheaper. If you are buying a newly constructed home, make certain your title insurance covers claims by contractors. These claims are known as “mechanics liens” in some parts of the country. The American Land Title Association has consumer title insurance information available at its website, www.alta.org.