"Where Great People Make Great Settlements"

I.             What is Title insurance?

 

a.       State insurance code -    Insurance of owners of property or other persons that have an interest in the property against loss by encumbrance, defective title, invalidity of title, or adverse claim to title.

b.      The purpose of insurance is to safeguard owner or buyer from possibility of loss as a result of title defects.  Three key purposes:

                                                              i.      Indemnity agreement to reimburse insured (homeowner or lender)

                                                            ii.      “Litigation insurance”- Insurer is required to defend insured if title is challenged by third party.

                                                          iii.      Hiring of experts in title matters.

c.       Unique Policy - A policy in the present, which insures over matters in the past.  Matters beyond the effective date are excluded from coverage.

d.      Rates are not on an individual basis but based upon average exposure. (Probability of loss) “on-record” risks are excluded.

 

II.          Title Searches or Abstracts

 

a.       Done by freelance abstractors – check all public records (land, state and federal court records, tax records, revenue or offices of finance and the State Department of Assessments and Taxation)

b.      Written summary of the historical transactions unique to a particular parcel of land. 

c.       Create a “chain of Title” for past 60 years.

d.      Summary sheet includes:

                                                              i.      Names of the parties currently on title of record

                                                            ii.      Deed reference (liber and folio) for legal description.

                                                          iii.      Deeds of trust, mortgages or any unreleased liens.

                                                          iv.      An indication of judgment records having been run on those on title in the last 12 years.

                                                            v.      Matters of record affecting the property (easements, restrictive covenants…etc.) Known as “exceptions” because policy does not insure over the effects of those items.

 

III.       Binder or Title Insurance Commitment

 

a.       It’s the preliminary report delivered to the insured (lender) prior to the closing and before the policy is issued, which shows the condition, of title and constitutes an offer by the insurer to insure the property and the parties listed

b.      Commitments expire after 6 months unless extended.

c.       Binder or Commitment has 4 parts:

                                                              i.      Declarations – “who, what, when and how much”

                                                            ii.      Insuring Agreements – specifies risks protected against in the contract – title impairment.

                                                          iii.      Conditions – states the rights and duties of both the insured and insurer/underwriter in the contract.

                                                          iv.      Exclusions - states the perils (causes of loss) and property not covered; i.e., title policies, for example, specifically exclude defects caused by the insured.

 

IV.       Lender’s Title Insurance

 

a.       Protects lenders who lend money and take interests in real property as collateral for repayment of the debt. 

                                                              i.      Lender requires borrower/owner to purchase the lender’s policy at time of closing.

                                                            ii.      Amount of coverage is usually the loan amount.

                                                          iii.      Premium is based on rates filed by the insurer with Maryland Insurance Administration.  No deviation.

b.      Insures mortgages and Deeds of Trust once they are recorded.

c.       Insurers liability decreases as the loan is paid down.  Full payment terminates liability.

  

V.          Owner’s Title Insurance

a.       Protects purchasers of residential and commercial properties.

b.      Usually purchased by buyer at time of closing on a sale for a one-time premium.

                                                              i.      Amount of coverage is the full purchase price of property.

                                                            ii.      Premium is based on rates filed by the insurer with the MD Insurance Administration.  No deviation.

c.  The owner’s title insurance policy remains in effect as long as the insured (buyer) or his or her heirs retain an interest (ownership) in the land.