Even the most meticulous title search may fail to uncover liens not reflected in public records as well as valid but undisclosed claims against the property’s title. This is where homeowners’ title insurance comes in – it is meant to protect the buyer’s interests, allowing homeowners to transfer a property’s title despite any uncertainty.
Why is title insurance important?
Homeowners’ title insurance is important because of defects in the title that could be missed after settlement. When you purchase a home in Maryland, you’ll receive the deed to the property, which serves as evidence of ownership of the home. A deed with defects – such as unpaid bills and taxes, and claims of ownership from interested parties – can make you vulnerable to financial debt and legal harm.
Title insurance protects you from hidden defects in prior deeds and clerical errors in real estate records. Although a title search can help detect a title defect, there may be unknown lies and heirs that can cost you a substantial amount of money as well as compromise your ownership of the home. Unknown defects may not necessarily show up in public records, but can still deprive you of your title to the property.
If title defects arise during your ownership of the property, homeowners’ title insurance provides legal protection against such claims as well as compensation in case of loss of the title. It will cover any legal fees and costs incurred when fighting a claim against ownership. Title insurance lasts for as long as you or your lender holds interest in the home.
Having title insurance gives you peace of mind when it comes to potential claims or lawsuits that were made before you purchased the property. All it takes is a one-time premium for an insurance policy when you take ownership of the property.
Can you purchase a home without title insurance?
No – lenders typically require lender’s title insurance when approving a loan in Maryland. Similar to mortgage insurance, a lender’s title insurance policy protects the interests of the financial institution issuing the mortgage.
Who can benefit from title insurance?
- Lenders (Lender’s Title Insurance) – It’s common for lenders to approve mortgage applications on the condition that the borrower purchase a lender’s title insurance policy in an amount that is equal to the home loan. Lender’s title insurance protects the financial institution in the event that a valid claim to the title purchases after the sale of the home has been finalized.
Also called a lender’s policy, this ensures that the lender’s lien gets priority and that it remains secure against the property if there is a valid claim. As the borrower pays down their mortgage, the amount of title insurance also decreases to their remaining balance in the lender’s policy.
However, this policy only covers the lender and not the buyer. If the buyer continues to make mortgage payments for 15 years and a previously unknown title defect surfaces, they could potentially lose the title, property, and equity acquired during that period. The lender, on the other, would be covered up to the amount of outstanding mortgage payments.
If you’re refinancing an existing mortgage, you will be required to purchase another lender’s policy at a reissue rate, which is usually around 40% lower than the price of a new policy. You will not be required to purchase a new owner’s title insurance or policy.
- Buyers (Owner’s Title Insurance) – Although lenders don’t require the borrower to purchase a homeowners’ title insurance, it can still be beneficial for homebuyers since lender’s title insurance doesn’t offer them any protection.
Also called an owner’s policy, this type of insurance protects the buyer’s interest in the scenario described above. If the buyer decides to purchase an owner’s and a lender’s policy at the same time, they could potentially enjoy premium savings on the policies.
This is known as a simultaneous issue, in which the owner’s policy premium rates are calculated based on the difference between the lender’s coverage (or the amount borrowed) and the buyer’s coverage (the purchase price of the home).
What’s the difference between standard and enhanced title insurance?
While a standard title insurance offers basic coverage, enhanced homeowner’s title insurance provides added protection against a wider variety of issues following your real estate purchase. It includes the coverage of a standard policy on top of coverage for additional risks, including:
- A tax agency levies supplemental real estate taxes that had not been previously assessed against the land due to issues with construction, change in ownership, or land usage before the policy date.
- There is a lack of pedestrian or vehicular access to and from the property due to easements or legal rights.
- Another property owner builds an adjoining structure that either obstructs access or encroaches onto the land after the policy date.
- You lose the title to the property for violating a covenant, condition, or restriction that were in place before you acquired ownership of the home.
- An external party attempts to enforce a covenant, condition, or restriction that can potentially affect your title, and which is discriminatory based upon race, gender, religion, nationality, disability, or familial origin.
Although an enhanced policy is generally more advisable than a standard one, there are instances where it may not be available. For example, if you’re purchasing a flipped home that the seller has only owned for a short period. Talk to your title company about enhanced title insurance for more information.
What should you know about unrecorded liens?
Unknown or unrecorded liens are liens that do not appear on readily available public records and therefore go undetected with a traditional title search. In general terms, a lien can take on the form of an encumbrance or legal claim on the home.
Although it won’t necessarily obstruct the legal transfer of ownership, it can negatively affect a property’s value and force the current owner to pay outstanding debts or fees tied to the property. In most cases, an unrecorded lien is an involuntary debt that can potentially result in high fines, and in extreme instances, foreclosure on the property with the legal loss of the title.
Some examples of unrecorded liens include:
- Municipal lien – As one the most common types of unknown liens, municipal liens don’t appear on city or state records since most municipalities keep the information in separate records. A municipal lien usually includes unpaid utility bills, special assessment taxes, and penalties for code violations. When doing a title search, a title company can uncover municipal liens by requesting special access to municipal records.
If a municipal lien is uncovered with you as the legal owner of the property, you may be on the hook for any outstanding fees and utility bills in the absence of homeowners’ title insurance.
- Unpaid property taxes – Tax agencies can attach a tax lien to the home due to unpaid taxes, which need to be settled before the property can be sold and title transferred. If unpaid property taxes come to light after the sale of the home has been finalized, you may be compelled by the corresponding tax entity to pay any outstanding taxes on the property.
- Undiscovered will – If one of the previous owners while the home was still legally in their possession, a hidden will and previously undisclosed heirs can cloud the title. Although it is customary for a title company to identify any wills and heirs by examining the property’s complete history, a hidden will may come to light after you take ownership of the home. An heir with a valid claim to the property may come forward and take legal action. This may include a previously unheard of spouse, child, or relative who brings the legal ownership of the home into question at a later date.
- Break in the chain of title– If there is a missing deed in the chain of title, and the title company is unable to locate or identify the previous owner, you could be vulnerable to claims against unknown heirs at some point in the future.
- Clerical errors, fraud, and forgery – These include incorrect signatures on various documents as well as fraud and forgery of a prior transfer can result in liens.
- Flawed records – If any clerical errors and inaccuracies went unresolved in previous transfers, you”ll have to deal with the ramifications as the current owner of the property.
- Unrecorded easements – These may include previously unknown terms or covenants that are so restrictive that can negatively impact the value, usage, or enjoyment of the property.
How to choose the right title company when purchasing title insurance
Some title insurance companies provide escrow services in addition to underwriting and issuing a title insurance policy. Here are some tips for choosing a title company in Maryland:
- Before signing a contract with a title, escrow, and settlement company, get in touch with the Maryland Insurance Administration (MIA) to check that they hold a valid license to operate in the state. Keep in mind that only licensed producers can facilitate settlements in Maryland, so you’ll also have to verify that the settlement officer working for the company holds a valid individual license.
- In Maryland, the buyer has the right to choose their closing agent and insurer. When buying a home, your real estate broker or agent may refer you to a title insurance company, but you are not obliged to hire that company.
The Federal Real Estate Settlement Procedures Act (RESPA) forbids sellers from making a sale contingent upon a specific insurer to prevent conflict of interest. Choose a licensed and reputable company that can address your needs.
- Some real estate or mortgage firms may have business affiliations with title insurance companies. If such an arrangement exists, the firm must disclose it in writing so that the buyer can make an informed decision.
Further, RESPA explicitly prohibits referral fees or kickbacks among professionals involved in such settlements. When choosing a title company or insurer, inquire about any affiliations they may have with your agent or the seller’s.
- The buyer should ask the seller if they purchased a title insurance policy at the time of the property’s purchase. If the answer is yes, the buyer should ask for the name of the company that issued the policy and consider approaching them for a new one.
If that insurance company has underwritten the risk and issued a prior policy, and the chain of title already established, then the title search can be hastened. In this case, the abstractor would only need to search the title from the present owner to the date of settlement. This will save you and the seller some precious time.
It’s also common for title insurance companies to include premium discounts, or reissue rates, in their rate filings. Since most of the work was done previously, the cost to underwrite and issue a new policy will cost less.
- If you’re refinancing an existing home loan, reissue rates with the lender’s policy may be available if you purchased homeowner’s title insurance at the same time you purchased your home.
Integrity Title & Escrow Company, LLC is a full-service title and settlement company specializing in residential settlements, refinancing, and the issuance of title insurance. Contact us today for more information.
Title insurance costs in Maryland
Who pays for title insurance?
In Maryland, the buyer customarily pays for title insurance even though there isn’t an existing rule or standard as to who should cover it. The cost of title insurance depends on the purchase price of the home. According to Bankrate, the policy for a property that costs $500,000 could potentially amount to $2,225, for example.
This amount typically includes the insurer’s fees and premiums owed for title insurance. Any premiums charged for title insurance should be approved by, and on file with, the MIA.
However, courier rates and document preparation fees at closing are not regulated by state law. This means that these fees vary with each company. Any fees the insurer charges you at closing should be listed on the settlement sheet that your lender or closing company will provide.
To find the best rates, talk to several title companies to compare fees and services. You can also ask whether any fees can be waived before signing with them.
How do I get title insurance?
Hire a reputable title company. Once you enter into the contract of sale, you’ll be asked to choose a title company with whom to discuss the coverage options. The policies are then purchased from an insurer, or a title insurance company, with the cost of the policies to be included in the closing costs.
An escrow company will initiate the insurance process upon completion of the purchase agreement. Some title insurance companies also provide escrow and closing services in addition to issuing title insurance, thus simplifying the process.
As previously mentioned, all title insurance companies in the state must have a license or a certificate of authority from the MIA to take part in the insurance business. Further, they must submit their policy forms and rates to the MIA for approval before issuing any policy in the state.
It’s common for title insurance companies to appoint producers or agents to underwrite the risks of the policy, collect premiums, and issue policies, and must be licensed with MIA as well. Producers also conduct the settlement or closings as well as manage escrow funds for closing costs, Realtor commissions, mortgage payments, and property taxes.
Pay for insurance at the settlement table. Title insurance policies are settled through a one-time premium charge at the time of closing or settlement. The premiums for title insurance policies will be calculated based on the purchase price. Maryland law allows for simultaneous title insurance, giving buyers the freedom to purchase an owner’s policy at the same time as a lender’s policy.
The premium for the owner’s policy is eligible for discount and can be combined with the premiums for the lender’s policy in a single charge, also referred to as a simultaneous issue charge.
Title insurance should ideally be purchased during settlement. The title insurance is issued at settlement, confirming that the insured owner is the lawful owner of the property. If you purchase an owner’s policy at settlement, you may be eligible for premium savings with simultaneous title insurance.
Why choose Integrity Title & Escrow Company for your home title insurance?
Integrity Title & Escrow Company, LLC has been in business for 24 years and is one of the leading women-owned title companies in the State of Maryland. Call us at 410.581.6861 or send a message here for more information on homeowners title insurance. Our company has an impeccable reputation and an A+ plus reputation with the Better Business Bureau (BBB). We also assist clients in Washington D.C. and Virginia.