The above questions are almost always considered by those who are buying real estate or refinancing their mortgage, whether out loud, under their breath, or in their thoughts, as they ponder all the cost and expenses of a real estate settlement.
Usually it does not matter whether you’re a first-time home buyer, an existing home owner, or a seasoned real estate investor. The expense of title insurance is usually the third largest of settlement costs, behind financing/mortgage costs and Pennsylvania Realty Transfer Tax.
What is title insurance?
Title Insurance provides both real estate buyers/owners, and mortgage lenders, with insurance that the property is properly titled in the name of the buyer/borrower and that there are no liens, mortgages, judgements, etc. against the property other than those which the parties (i.e. buyer/borrower and lender) acknowledge. A mortgage lender usually wants the lien of its loan/mortgage to be in first position against the property so that said loan gets paid first, before any other debts associated with the property, if the property is ever sold.
The amount of the title insurance premium is paid at the time of the real estate purchase, or at the closing on the mortgage refinancing. The amount of the title insurance premium is based upon the amount of the title insurance coverage. For the most part, title insurance companies all follow the same premium rates and also such rates, and title insurance charges, are governed and approved by the Pennsylvania Department of Insurance. The title insurance premium on title insurance coverage up to $30,000.00 generally ranges between approximately $500.00 and $625.00. The amount of the title insurance premium then increases as the amount of the title insurance coverage increases:
- Title insurance premium on $100,000.00 worth of coverage ranges between $900.00 and $1,100.00
- Title insurance premium on $250,000.00 worth of coverage ranges between $1,600.00 and $2,100.00
- Title insurance premium on $500,000.00 worth of coverage ranges between $2,800.00 and 3,600.00
Please remember that title insurance agencies all charge the above title insurance premiums, but their miscellaneous settlement costs differ from agency to agency. For example, some title insurance agencies charge $25.00 for notary fees, and others charge $50.00. Some title insurance agencies charge a document preparation fee of $150.00, and others do not charge anything for same. Some title insurance agencies charge $100.00 for “conveyancing” (i.e. obtaining tax certifications, public water and public sewer certifications, etc.), and others do not charge anything at all. If you are buying a home, or refinancing a mortgage, I recommend that you speak with the person at the title insurance agency handling your settlement and have him/her provide you with a list of all of that agency’s settlement costs (i.e. notary fees, documents preparation fees, wire transfer fees, etc.) as well as the aforementioned title insurance premium. This way, you will have a much better idea of your real estate settlement costs and will be better equipped to shop your business with a few title insurance agencies in the area before deciding upon which agency with which you wish to do business.
Why do you need title insurance?
Quite frankly, you are not required to purchase title insurance if you are purchasing real estate without the aid of mortgage financing (i.e. you are paying cash). I could buy my mother’s home, or a building from my best friend from high school, and I am not required to purchase title insurance so long as I am paying cash for the property. However, I highly recommend that you use the services of a local title insurance agency, and purchase title insurance, on any transaction, regardless from whom you are purchasing the property, and any transaction in which you are paying more than a nominal purchase price. In other words, any real estate investment, with a cash payment and without mortgage financing, should be accompanied by the services of a title insurance agency and the purchase of title insurance. You want to make sure that your investment in the real estate is protected with insurance that you are the one and only owner of the property and that there are no liens, mortgages or judgements against same. Not only should you utilize the services of a title insurance agency to prepare a Deed, handle the pro-ration of real estate taxes, public water and public sewer expenses, home owner’s association assessments, etc., but you want title insurance to eliminate any prior owners of the property. Without title insurance, you could end up buying a home which has other/former title owners who make a claim to ownership. In addition, you could be purchasing real estate which has liens recorded against it. The services of a title insurance agency, and title insurance coverage, will provide you with insurance that all former owners of the property are extinguished and all liens are paid/satisfied and removed from title. In addition, the title insurance agency will prepare the Deed and make sure that the legal description, spelling of names, the signature and the recording of the Deed are properly processed.
Again, real estate purchasers are not required to have title insurance if they are paying cash for the property. However, the real estate purchasers, or refinancing borrowers, are, indeed, required to have title insurance, and to pay for same, if they are going to be financing any of the purchase price (i.e. getting a mortgage). Private lenders may not require title insurance; however, private lenders certainly should. Conventional lenders (i.e. banks, mortgage companies, etc.) almost always require title insurance. The lenders want to make sure that they are loaning the money to the buyers and that their loans are secured by a mortgage that is recorded against the property so that their lien is satisfied if the property is ever sold, foreclosed upon, etc. The lender also wants to make sure that their mortgage is recorded in an agreed upon lien priority position which usually is the first position, so that the mortgage gets paid first if the property is sold; however sometimes lenders and borrowers can negotiate that loans/mortgage be in the second, third, etc. position.
What should you do if you still have questions about title insurance?
Real estate purchasers, and homeowners who are refinancing their mortgage, should discuss the aforementioned issues with their real estate professionals (i.e. their real estate attorney, realtor, and lender) so that they better understand their rights, expenses incurred during the real estate process, their options, etc. Real estate purchasers and borrowers choose which title insurance agency with which they wish to do business, and they need to do so in an informed fashion. Real estate purchasers, and borrowers, should talk to their real estate attorney in Montgomery County, realtor and lender and inquire as to whom they would recommend for a title insurance agency. The real estate buyer and borrower chooses their title insurance agency and are not required to use anyone foisted upon them by the other parties to the transaction (i.e. seller, lender, realtor, etc.). Ask questions, inquire as to costs, and be a more informed consumer.
Contact OWM Law regarding your rights and options in any real estate transaction. Our team of real estate attorneys in Montgomery County would be happy to provide you with advice regarding your title insurance needs.
This article was written by: David A. Megay, Esquire