Title Insurance for Real Estate Professionals

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Title Insurance for Real Estate Professionals. CHAPTER 1 THE BASICS OF TITLE INSURANCE What Does a Title Insurance Company Do?. Title insurance companies "insure title to real property. Insure To indemnify by providing monetary reimbursement for losses. Title - PowerPoint PPT Presentation

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  • Title Insurance for Real Estate Professionals

  • CHAPTER 1THE BASICS OF TITLE INSURANCE

    What Does a Title Insurance Company Do?

  • Title insurance companies "insure title to real property

  • Insure

    To indemnify by providing monetary reimbursement for losses.

  • Title

    The rights of ownership in real property.

  • Real property consists of various components.

  • Real Property Components1. SURFACE

  • Real Property

    2. SUBSURFACE

  • Real Property

    3. AIR SPACE

  • Real Property

    4. RIGHTS

  • Real Property Includes Improvements.

    Attachments to real estate intended to be PERMANENT.

    Examples: houses, fences, driveways, trees, and bushes

  • Real Property Includes Fixtures. Attachments to improvements that become part of the real estate. Examples:heating, plumbing, and electrical fixtures.

  • Exceptions to Fixture RuleTrade fixtures used in a business or trade (usually when leasing).

    Emblements, or farm crops, can be sold separately from the land.

  • Chattels

    Personal property, i.e.,EVERYTHING that is NOT real estate.

    Examples:furniture, vehicles,stocks, andbonds.

  • Chattels Include:cash,contracts, andpurchase agreements.

  • Modular HousingReal or Personal Property?Is it attached as an improvementand taxed as real property?

  • RIGHTS, TITLE, AND INTERESTS

    Certain rights always belong to the government.

  • Government Rights1. Police Powers

  • Government Rights1. Police Powers

    2.Eminent Domain

  • Government Rights

    1. Police Powers

    2.Eminent Domain

    3.Taxation

  • Government Rights

    1. Police Powers

    2.Eminent Domain

    3. Taxation

    4.Escheat

  • HIERARCHY OF GOVERNMENT RIGHTS

  • Federal government has highest priority, thenstate is followed bycounty and then municipal.

  • PRIVATE RIGHTS IN LAND

    These are often discussed in terms of a bundle of rights.

  • Title insurance can insure almost any estate in real property:

    fee title, a mortgage, a land contract, an easement...

  • Three AreasTitle CompaniesExamine to Reduce Risk

  • CONSTRUCTIVE NOTICE The rights shown by the public record.

  • ACTUAL NOTICE This occurs when something can be observed, heard, or sensed.

  • RIGHTS AS CONSEQUENCE OF LAW

    Unrecorded documents, grantors under legal age, fraud, forgery, duress, insanity, incompetency, unknown heirs, undisclosed marriages, identity theft...

  • CHAPTER 2THE BUSINESS OF TITLE INSURANCE

  • Title Assurance vs. Title Insurance Title assurance is a broad termincluding surveys, maps, title opinions, and anything having to do with title.

    Title insurance is a specific contractual obligation.

  • Alternative Products to Title InsuranceCasualty insurance products

    Borrowers credit score

    Owner and encumbrance reports

  • Title Insurance Protects Everyone

    Lenders, buyers, andreal estate agents

  • Lenders Title policies indemnify lenders against loss.

    Use standardized formsandhomogenize state laws.

    Help home ownership by makingsale of mortgages easy.

  • The Secondary Market This ensures a constant source of money for housing.Financiers require title insurance toprotect their investment.

  • Title Insurance Protects Homeowners and Their Investment

  • Title Insurance and the Real Estate Agent BEWARE!

    Never tell your buyer they dont need an owners policy. You may be at risk if there is a problem later!

  • Title Companies may insure over or provide affirmative coverage for problems for lenders.

    Insurance over a title problem is often available to the owner.

    Ask for it!

  • Recognize a Notice of Title Defect.

    It is information important to the buyer.!!!

  • Owner Policy Is Different From Lender Policy

    Owners policies are for the full sale price of the property.

  • Owner Policy Is Different From Lender Policy

    Lenders policies only cover the loan amount,not buyers equity.

  • Owner Policy Is DifferentFrom Lender Policy

    Owners coverage can last forever, as in corporate ownership or a trust.

  • Owner Policy Is DifferentFrom Lender Policy

    Mortgage policies decrease in value as the loan is paid down and expire when the loan is paid off.

  • A title company is either a title insurer (a.k.a. title underwriter)

    or a title agent.Title AgentTitle Underwriter

  • Title insurers take liability under the policy.Title agents write policies of title insurers.

  • Closing Liability vs. Title Insurance Liability

  • Title policies indemnify onlytitle issues

  • Protect the Lender & Buyer Closing protection letters from the underwriter indemnify closing errors and theft of funds by a title agent.

  • CHAPTER 3

    MYTHS AND TRUTHS

  • TOP SIX MYTHS ABOUT TITLE INSURANCE

  • MYTH Title insurance is a guarantee of good title.

  • TRUTH Title insurance cannotguarantee good title.

    Fraud, forgery, misrecordedor unrecorded documents,and undisclosed heirs all cause loss of property.

  • MYTH

    When a lenders policy is issued, title must be good.

  • TRUTH

    Even though a lenders policy exists, title may not be good.

    Title companies take calculated risks.

  • MYTH Title insurance is like other forms of insurance.

  • TRUTH

    Title insurance is not like other types of Insurance

    Title insurance covers past risks, not future riskslike fire insurance.

  • Title insurance is not likeother forms of insurance.

    What the consumer does to their own title after they purchase propertyis not covered.

  • Title insurance is not like other forms of insurance.

    The title industry is one of risk elimination not risk assumption.

  • Title insurance is not like other forms of insurance.

    Investigating title in order to insure itis expensive.

  • Title insurance is not like other forms of insurance.

    Title issues today are riskier than those in the past because of fraud, forgeries, etc.

  • MYTH

    Very few files have title problems.

  • TRUTH

    One in four files have title problems!

  • MYTH

    Title companies rarely pay.

  • TRUTH

    Title claims are skyrocketing!

    In 2003 title industry paid out $661.7 million in claims

  • Title companies pay.

    Remember:Title insurance covers fraud, forgery, incompetence, duress, errors in records, survey issues, identity theft, and more.

  • Real estate is a detailed and complex business withmany places to make mistakes.

  • Title policies provide a contractual duty to defend any covered claim, valid or not.

    Defending a claim is costly.

  • CHAPTER 4

    HOW TO READ TITLE WORK LIKE A PROFESSIONAL

  • A title commitment is the document that shows all title research done on a propertythrough a particular date.

    It is used to prepareclosing documents.

  • Understanding the Layout of a Title Commitment

  • Cover sheet or jacket

    Standard language pertainingto terms of the policy

  • Schedule A

    Identifies the property, the insured,policy amounts,how seller holds title, and aprecise legal description.

  • Schedule B

    The meat of the titleand key to closing.

    Where to concentrate your efforts.

  • Title Exceptions Found on Nearly All Properties

  • Real estate taxes are a government right.

    They are handled at closingper the purchase agreement.

  • Assessments,a charge for the improvement of property.

    Handled at closing per the purchase agreement.

  • Easements are authorized uses of land for a specific purpose.

  • Types of Easements

    Utility and drainage easements are most common.

    Consumer should be aware of their location and size.

  • Types of Easements

    Blanket easements cover a large tract of landwithout being specifically located.

  • Types of Easements

    Common driveway easements occur when two adjacent parcels share access.

  • Types of Easements

    Wetlands or environmentaleasements require the owner NOT to changethe habitat.

  • Mortgages/deeds of trustpledge the property as security for a loan.

  • Covenants, Conditions, and Restrictions (CC&Rs)

    These can be deed restrictions i.e., restrictions contained within a single deedto limit use of property.

  • Covenants, Conditions, and Restrictions (CC&Rs)

    These most often cover an entire subdivision.

  • Common interest communitiesoccur when owners sharesuch things asaccess, party walls,parking, and utilities.

    CC&Rs cover these issues.

  • Covenants, Conditions and Restrictions

    Be sure the buyer readsthese before the closing!

  • UNDERSTANDING AND REMOVING TITLE ISSUES

  • Understand the language so you can resolve the problem.

    Encumbrancesany claim on title.

    Liensa type of encumbrance that can be removed with money.

  • Liens are classified as specific liens or general liens

  • Examples of Specific LiensSpecific liens attach to specific real estate. Mortgages $ Mechanics Liens Real Estate $ Taxes $

  • Examples of General Liens General liens attach to people..

    State Tax Liens JudgmentsChild Support Federal Tax Liens

  • ...and everything the people own including real estate.General Liens ex: STL, FTL, JU

  • An attorneys lien is filed for services rendered by an attorney.

  • Financing Statement

    A lien filed on personalproperty.

  • Mechanics lienscome about when material or labor are suppliedto build, renovate, or repair property.

  • Judgment Liens

    These are obtained bycourt order.

  • State tax liensare government liensfor non-payment ofstate taxes.

  • Federal Tax Liens

  • Child Support Liens

    These are general liens fornon payment of child support.

  • Federal district court judgmentstend to be large nationallawsuits with large awards.

  • RED FLAG AREASFOR CLOSING

  • Bankruptcy

    A way to temporarily suspend and possibly preventdebt collection for those debts listed at the time of the bankruptcy petition.

  • Cloud on Title

    This is a generic name forany item that might make title unmarketable.

  • Homestead Exemption Issues

    This is a law that protects a portion of the value of an ownersprinciple residencefrom unsecured creditors.

  • Eminent Domain

    The governments taking of landfor the public good andwith just compensation.

  • Abstracts of Judgment

    This is a lien in favor of theU.S. government or anyU.S. agencythat is good for 20 years.

  • Pollution Control Liens

    These are liens by any government agency for land clean-up.

  • Decrees of Dissolution (Divorces)

    These can create title issues.

    Watch for:transfer of title to one party,liens, name changes, or special stipulations.

  • Notices of Lis Pendens

    This is a legal document stating that a law suit has been commenced on the property.

  • CHAPTER 5

    UNDERSTANDING TITLE POLICIES

  • Title companiesdeal with problemsdifferently.

    You can shop a title company for the coverage you want.

  • Marketable Titlevs.Insurable Titlevs.Salable Property

  • Two Primary Types of Policies

    Lenders and Owners

  • All title policies have the samefive sections

  • Section OneStandard insuring provisions 1.Title to the estate is as described in Schedule A. 2.There are no defects liens or encumbrances on title except as shown.

  • 3.A legal right of access to and from the land exists.

    4. Title is marketable.

  • On all policies, thetitle insurer has a duty to defend, whether or not the claim is bogus.

  • Section TwoExclusions From Coverage This outlines what is alwaysdisqualified as a claim under a title policy.

  • Section ThreeConditions and Stipulations

    This describes the rights and responsibilities of the title company and the insured.

  • SCHEDULE A

    This identifies the legal owner, property to be insured, amount of insurance, type of policy, etc.

  • SCHEDULE B (the meat of the policy)Has four standard exceptions.

  • 1.Parties in possession not shown by the public record.

  • 2. Easements not shown by the public record.

  • 3.Questions of survey

  • 4. Unrecorded mechanics liens

  • Waiving the four standard exceptions providesextended coverage.

  • Schedule B(the meat of the policy)

    In addition to the four standard exceptions, all known title issues are listed on Schedule B.

  • Endorsements

    These are used to modify the policy, by adding or deleting coverage.

    They are critical to a transaction.

  • The new ALTA Homeowners Policy of Title Insuranceis the Cadillac of title policies.

    It provides 29 specificcoverages, including some into the future.

  • CHAPTER 6 TITLE INSURANCE REQUIRES PROFESSIONALS

  • People in the Title Process

  • Order processor

  • Title searchers / abstractors

  • Title examiners

  • Attorney / closer Closing assistant

  • Recording specialist

  • Other Title Company Personnel Marketing staff Customer service RecordkeepingTitle plant personnel Policy preparation ManagementAccounting

  • Title companies insure BILLIONS of dollars each year in real estate.

  • They work with legal records, examining old and creating new.

  • Title companies deal with lender requirements, 20-page purchase agreements, and the stress of buyers and sellers.

  • They work hard to make transactions go smoothly and accurately.

  • It takes a lot of skilled professional peopleto make the transaction go well.

  • Does NOT mean title is good, does NOT guarantee that you can maintain possession of your property because title can be lost due to unrecorded documents, errors in public records, identity theft, or a host of other things.Title includes such things as: use, possession, occupation, control, exclusion of others, disposition, and enjoyment.Blackacre is a term used to describe any given piece of real estate. Blackacre is to real estate as John Doe is to the public.(The rights pertaining to title, as discussed.)What items in this picture are NOT real property? Good discussion point:There are many local issues right now as to taking of property by cities in order to clean up certain areas to make them more desirable. Cities are saying tearing down old, worn, and less desirable properties and putting up new is for the public good because the new, more desirable areas will generate a higher tax base for the city. Note that certain items are reserved to the states, and not governed by Federal law. Generally these include marital rights*, banking, and insurance rights, among others.*Marital rights include the ability for a state to decide if it will confirm partners rights, but marriage has a federal definition requiring a union of one man and one woman.Overhead power lines and telephone lines that can be seen are examples of actual notice. Even though they are not recorded, the public is charged with notice of the power line or telephone easement because they can be seen.A key reason that title companies ask for affidavits from buyers and sellers, asking if they are aware of any title problems. Also, see tips to instructor: 70 ways you can lose title. Although it is common procedure to supply closing protection letters to a lender, they ARE available to buyers also, but your buyer must ask for them. When using a title agent, the only way to make the underwriter (who has the money!) liable for closing errors and funds, is to insist on the closing protection letter. And yes, unfortunately, errors and theft in title companies occur all too frequently.See tips section in Instructor Resource guide for 70 ways titles are lost.For example, a minor encroachment onto an easement is unlikely to cause a claim, because the owner or lender would have to have a loss to turn in a claim. That would mean the utility would have to be dug up for repair and the building damaged in the process. Other technical problems often occur, which will correct themselves over time.Also, when a title company makes an error and has liability under an existing policy, they will often insure it again rather than have to pay a claim under marketable title. Again many problems ar...