If you are in the process of purchasing a new home, an investment property, or maybe a vacation home, you may have heard that you need or don’t need title insurance. Even if you’ve been through the process before, you probably don’t fully understand what it is, what it does, and why you need it. This article should shed some light on where title insurance and title companies fit in the real estate process and why it is always a good idea to have title insurance.
What is Title Insurance?
Title insurance is an insurance policy that is issued to protect lenders and homeowners from any problems or “defects” in title. Simply preparing, signing, and recording a deed will transfer ownership of a property, but that alone doesn’t guarantee that there are no problems that could arise later. These defects in title can range from forgery and fraud to unknown liens or debts against the property such as a mortgage that wasn’t disclosed, unpaid taxes or municipal services, or even unpaid child support or judgments against the seller.
Why Do You Need Title Insurance?
If you are purchasing a property with a loan, the lender will require title insurance to protect them against any defects in title. An owner’s policy is optional, however, it is always a good idea to have the protection of title insurance. Title agencies go through a rigorous review process which includes a title search of the past ownership and records that effect the property, confirming the payment of taxes, and confirming there are no debts or liens against the property that would effect title. Title companies in Pennsylvania also act as “escrow agents” meaning that they collect all of the money for closing, pay the seller and all of the closing costs, hold closing and complete the signing of all documents, and record the deed and mortgage. All of these services are included in the price of the title insurance policy, but a title insurance company is not permitted to provide any of these services unless they are providing an insurance policy.
Sometimes real estate attorneys will perform the same functions of an escrow agent, but without providing title insurance. This is not a recommended method of transferring property because in the event of an issue or problem after closing, there is no insurance provider available to step in and resolve the problem. The attorney who handled closing may be able to help, but there is no guarantee and it will likely cost more money. Often the fees charged by a real estate attorney providing transactional services are similar or the same as what would be paid for title insurance.
How Much Does Title Insurance Cost?
Title insurance varies in price and is based on the purchase price or loan price of the real estate involved. The rates for title insurance in Pennsylvania are set by a state agency called the Title Insurance Ratings Bureau of Pennsylvania or “TIRBOP.” This means that the rates charged by each title agent are the same throughout the state, so there is no reason to price shop. Pennsylvania is also an inclusive state which means that title agencies are only allowed to charge for the title insurance premium itself and any out-of-pocket expenses incurred such as wire fees, overnight charges, or charges for obtaining tax certifications. Title agencies are not permitted to charge a separate fee for the title search, preparing the closing documents, or any “junk fees” which inflate the cost of the closing.
How to Chose a Title Agency
In Pennsylvania, the buyer always has the right to choose their title agency. Often a lender or the buyer’s agent will steer a buyer towards a preferred title agency, but ultimately it is the buyer’s decision. Because there is little variation between title agencies, choosing the right title agent can be a difficult decision to make. Look for an agency that is upfront about their fees and costs, communicative, and willing to provide personalized service. If you are making one of the biggest purchases of your life, you need a trusted team that’s able to explain and guide you through the process every step of the way.
Cherewka Law, P.C. has a wholly-owned subsidiary title agency, Paramount Settlement Services, LLC, and routinely assists clients with residential and commercial closings, as well as refinances. By using our title agency you get the benefit of having the knowledge and experience of a real estate attorney without the extra fees. Contact our office today for a quote on title insurance or if you have questions about any real estate matters.