If you own a home you’ve bought Title Insurance, it’s a part of the home buying process. Unlike homeowners insurance that is ongoing coverage, title insurance and the title company works a little differently. Many people don’t understand it entirely just maybe nod their head in agreement or remember they signed the closing papers there. The role of the title company is to check the property for any liens against it and to act as a neutral third party between the insurance company and lender. Incidentally, they also act as a neutral third party holding company at closing between the buyer and the seller. It might seem like a common sense step but we sometimes forget that people commit fraud and leave behind debt or unpaid taxes often. If you fail to have the title checked and cleared then you’d be on the hook for previous owners debt. To learn more about what title insurance and what a title company does contact United Mortgage Financial Group at 480-503-3533 or visit us online at http://www.arizonamortgagenews.com/contact-us/
Matt: Welcome back to another segment of “Arizona Mortgage News Insider Update.” We’re here with our insider, local resident Mike Goblet of United Mortgage and Financial Group. Good morning, Mike.
Mike Goblet: Good morning, Matt. How are you?
Matt: Doing quite well in this fine Arizona weather we have.
Mike: Yes. It’s the monsoon season.
Matt: Yes, indeed.
Our title today looks like a good one. “What Is Title Insurance and Why Is it Necessary?”
Mike: Yeah, title insurance is part of every mortgage transaction, but people rarely understand what it’s about and why it is necessary. I thought it would be a good clarification point.
Matt: Excellent.
Mike: If you’re buying a home, there’s really only one step to the process…excuse me, if you’re refinancing your home, but if you’re purchasing, it’s two step.
Even before we get into those steps, let’s talk a little bit first about the title company and their role. They are designed to be a neutral third party assisting in the transaction. And they end up doing much of the work regarding the title search.
In a purchase, they also provide another role in that as the escrow company between the buyer and the sellers handling the cash. Again, as a neutral third party.
What they do in terms of the title insurance is they do the search for what are called any “clouds” on the title for the ownership of the property. That any liens that might be filed by somebody, they check to see.
Then the title company, they are the ones who issue what’s called a “Loan policy” for the property that assures that the lender, or the new lien holder that number one, there are no clouds on the title and number two, that they are in the first position of that lien.
Matt: Makes sense.
Mike: That’s a consistency to whether it’s a purchase or whether it’s a refinance. But now the next step, if it’s a purchase, there’s also an extended search that needs to be done to make sure going back further in history.
You can picture on a refi, you’re talking about a continuation or retained ownership. There’s lesser things that could have happened to that title. If there’s been different transactions going on, the history needs to be deeper and a stronger amount of research.
Now, in a purchase, this is called an “Owner’s title policy,” and it’s usually paid for by the seller. OK? It’s more in depth and actually costs more, but it’s required before the title company will issue that lender’s policy that insures the lender that they’re in that first position.
The only caveat I might make to that is it seems like in most builder situations, builders usually end up making the new buyer pay for that policy as well. As I said, normally it’s paid for by the seller.
The question is, what are they looking for? And why is this necessary? Well, the obvious is that they’re looking for such things as court filed liens, like a mechanic’s lien for work that may have been done against the property. The mechanic or the person that did the work not getting paid can file a lien.
HOA’s can file liens against homes and properties. Tax liens often happen. These are the most common, OK? And the easiest part.
The title company in its due diligence must go deeper. For instance, they also check that the title and the deed for any omissions or errors. They have to search for fraud or forgery that may have occurred on the policy. Things that we say, “Well, this can’t happen.” No, the mortgage meltdown proved this can happen, and it’s why title policies and the research regarding it become even more important.
But there’s even nuances out there that we never even think about, like conflicting wills against the property that may exist due to just variations that may have happened during the property’s ownership.
Or undiscovered heirs that can come out of the woodwork saying, “I didn’t know about it, and now I have a claim against the property.” The title company will do the research against that, and candidly will even provide an insurance policy, but it’s not the same one that the lender policy is. It’s a separate program that you might want to buy, for instance, as the homeowner, called the “Owner’s policy.”
You can see this can get a little complicated, although at the end, we just go, “No, it’s all clean.” There’s a lot of research that needs to be done to make sure that the ownership of a property is consistent and there’s nothing out…any encumbrances out there that could affect that purchase or the ownership.
Matt: Is this something that the insurance companies do the research on to investigate?
Mike: Well, the title company does the research for the insurance company. Actually, you even remember in a prior dialogue we had here, it’s the underwriter’s job to make sure for the lender that there are no liens, again, that are on there. But the title company is the one who did the work for both the insurance company and the underwriter.
Matt: Got you.
Mike: A lot of people then wonder about the fees. Well, generally it’s a very competitive industry. And the fees are usually very comparable, but title and the choice of title is something you can choose if you want to do the research and pick your own title company. OK?
Usually in a purchase transaction, the buyer’s Realtor chooses the title company. OK? But even sometimes a FSBO transaction or a cash transaction, you’re going to want to use a title company to make sure that everything remains there, whether it’s required or not, because there’s not a mortgage there.
The role of a title company is very important.
Matt: As always.
Mike: Bottom line. It’s a requirement for every new mortgage, even if you’re purchasing, as I said, purchasing for cash you’d be foolish not to get it. I just hope this helps you understand a little bit about what you’re getting for and why you’re paying for it.
Matt: It sure does. Well, if anybody has questions regarding title insurance or just mortgage questions in general, what’s the best way to get in touch with you, Mike?
Mike: Well, obviously you can call me here at the office at 480‑503‑3533. Call my cell phone directly. Happy to talk with you at any time, even after hours. Traditional business hours or weekends. That’s 480‑220‑2329. Or email me at mike.goblet at our company initials, umfginc.com.
Matt: Very good. Thanks for another enlightenment or weekly dose of good information.
Mike: Well, happy to provide. Look forward to our next one. It will be a wrap on the things to know about the loan process.
Matt: Very good. Have a good day, Mike.
Mike: Thanks, Matt. We’ll talk to you soon. I look forward to talking to anybody that has questions.
