What is Title Insurance?
- Title insurance is a contractual obligation to protect against losses that can occur when title to property is not free and clear of defects (e.g. liens, encumbrances and defects that were unknown when the title policy was first issued).
Check out our blog for more information on title insurance.
Why have Title Insurance?
Title insurance protects the insured against covered title defects affecting the insured property. When you buy a home, you expect to enjoy important property rights. For example, you likely expect to be able to occupy the property to be free from debts or obligations not created or agreed to by you, and to be able to freely sell your property or pledge it as security for a loan. Title insurance is designed to protect property rights.
Here are seven reasons to purchase an owner’s policy of title:
- Buying a home is a big investment
For a one-time premium, an owner’s policy of title insurance protects that investment.
- Seller may not own the home or have authority to sell
Title insurance offers coverage against defects in title caused by fraud, forgery, incapacity or impersonation of the seller’s lack of authority to sell the property.
- Warranties in your deed may not guarantee home ownership
Even if the seller warrants good title to you in the deed, the seller may not have the money to pay your losses if a problem arises. When you purchase an owner’s policy of title insurance, you have the financial power of Landmark Title to protect you against loss from covered claims.
- Policy may cover more than ownership
Depending on the type of policy issued, coverage insuring against loss due to disputes over boundaries access rights and easements may be provided to you. Ask about available options for extended or expanded coverage.
- Lender’s title policy does not cover you
Your lender requires you to pay for a lender’s policy of title insurance, but that policy only provides insurance to the lender. A homeowner is not covered, and cannot make a claim under a lender’s policy of title insurance.
- High cost of claims
Title disputes are not cheap. Are you prepared to pay a lawyer to fight for you in court? Title insurance includes coverage for legal expenses which may be necessary to investigate, litigate or settle an adverse claim.
- Coverage for a one-time premium
The premium for an owner’s policy of title insurance is only paid once and covers you for as long as you hold an interest in the title to your home. The coverage automatically continues for the benefit of your heirs as well.
How do you hold title?
A title deed is the document which proves the ownership of a property. In general, title of a property is acquired either by a transfer (as in the case of sale) or by the law (for example, when property is acquired via a testament or will). The rules can vary by state. In Arizona and Nevada, there are different types of real estate title options. These include joint tenancy, tenancy in common, tenants by entirety, sole ownership, and community property. For a breakdown of details on holding title, click here to view our informational graphic.
What are the ways to take title?
There are five common ways to take title in a community property state such as Arizona and Nevada: 1)joint tenancy 2) tenancy in common 3) tenants by entirety 4) sole ownership 5) community property. Other, less common types of title ownership include corporate ownership, partnership ownership, and trust ownership.
- Community Property (Married Couples Only)
In a community property state, by statute, all property acquired by husband and wife is presumed to be community property unless stipulated otherwise. Community property ownership can apply only to married persons. The interest of a deceased spouse may pass either by Will or by Intestate Succession.
- Community Property with Right of Survivorship (Married Couples Only)
Community Property with Right of Survivorship is co-ownership by husband and wife providing for the surviving spouse to retain full title after the death of the other spouse. Allows for a stepped-up tax basis for Capital Gains Taxes to a surviving spouse.
- Joint Tenancy with Right of Survivorship (multiple persons)
A method of co-ownership that gives title to the last surviving Joint Tenant.
- Tenants in Common (multiple persons)
A method of co-ownership where the parties do not have survivorship rights and each owns a specific undivided interest in the entire title.
- Sole and Separate
Real property owned by a spouse prior to marriage or acquired after marriage by gift or inheritance. When a married person acquires title as Sole and Separate Property, his/her spouse must execute a Disclaimer Deed.
Title put under a trust must provide the name of the trustees and name and date of the trust. A full copy of the trust will be required if less than all of the original trustees sign documents.
How is an owner’s policy dictated?
In Arizona and Nevada, the homebuyer has the option to select the title company and the premium fee is paid by the seller. However, the closing costs may be split between the buyer and seller. In most cases, the seller pays for the owner title insurance policy, and the buyer pays for the loan policy, unless directed otherwise by your sales contract.
For more specifics on owner’s policy comparisons, please click here.
What is escrow?
The technical definition of an escrow is “A transaction where one party engages in the sale, transfer or lease of real or personal property with another person who delivers a written instrument, money or other items of value to a neutral third person, called an escrow agent or escrow holder.” The third person holds the money or items for disbursement upon the happening of a specified event or the performance of a specified condition.
The escrow holder impartially carries out the written instructions given by the principals. This includes receiving funds and documents necessary to comply with those instructions, completing or obtaining required forms and handling final delivery of all items to the proper parties upon successful completion of the escrow. The escrow holder must be provided with the necessary information to close the transaction. This may include loan documents, tax statements, fire and other insurance policies, terms of sale and any financing obtained by buyer, and requests for various services to be paid out of the escrow funds. If the transaction is dependent on arranging new financing, it is the buyer’s responsibility to make the necessary arrangements.
Documentation of the new loan agreement must be in the hands of the escrow holder before the transfer of property can take place. When all instructions in the escrow have been carried out, the closing can take place. At this time, signatures are obtained by all parties, all outstanding funds are collected and fees such as title insurance premiums, real estate commissions, termite inspection charges, etc, are paid. Title to the property is then transferred under the terms of the escrow instructions and the appropriate title insurance policies are issued.
What to expect when you’re in escrow?
As an escrow holder, the escrow company’s duty is to act as the neutral third party. The escrow company holds all documents and funds, pursuant to the purchase contract and escrow instructions, until all terms have been met and the property is in insurable condition; then, it completes the transaction, making the final exchange. An escrow company does not work for the seller or the buyer: it is employed by ALL parties and acts upon mutual written instruction.
When does escrow open?
When the fully executed contract and the buyer’s earnest money deposit is delivered to the escrow company. Signatures of all parties are required on the purchase contract and related documents to open escrow.
The escrow company requires the following information from the purchaser:
- Marital status
- How you will be holding title
- Social Security number
- Mortgage company name & phone number
- Your phone number, contact address and email.
- If you will be signing documents in the office or if signing remotely.
An Escrow Officer reviews the contract, deposits the earnest money in the escrow account, orders the Commitment for Title Insurance, and prepares the documents required to close escrow.
When does escrow close?
An Escrow Officer will call to make an appointment for the buyer to sign closing documents, which will take approximately one hour. A U.S. Government-issued photo ID (and sometimes a second form of ID) must be presented by all signers in order for your signatures to be notarized.
Upon receipt of all “Good Funds” (Buyer’s closing funds and the loan proceeds) and fulfillment of contingencies, the documents are then released to record. Upon confirmation of recordation, all funds are disbursed and closing packages are provided to all parties.
For more information on the life of an escrow, check out our blog post.
Once you’ve found your ideal home, negotiated a purchase price and your offer is officially accepted, you enter escrow. In this next phase of the purchase process, you will go through the inspection phase and finally, a successful escrow closing. Here are a few tips for a smooth escrow closing process:
- Make sure the purchase and/or sale agreement is fully executed and all areas are completed.
- Provide clients’ full contact information i.e. email address, phone number and regular mail address as we begin to communicate with them immediately.
- In section three of the contract make sure to write Landmark Title Assurance Agency.
- If property is within a Homeowners’ Association, make sure to disclose through the HOA Addendum all the HOA companies involved (there may be more than one).
- If a Power of Attorney is to be exercised, please send your escrow officer a copy of it ASAP. Title Dept will review and approve the use of the document, it will be reviewed for legal verbiage, dates and notary acknowledgement. Escrow will need the original document to record at closing.
- Will your buyer/seller be out of the country during the escrow? If so, the client will need to schedule an appointment with the American Consulate or US Embassy to notarize the documents or exercise remote online notary (R.O.N.)
- If any divorces, deaths or trusts appear on the Title Report, copies of the divorce decree, death certificate or trust agreements are required. This will tell the escrow agent who the authorized/rightful owner of the property is. Always utilize an addendum if any seller credits are negotiated as a result of the BNSR.
- Make sure to review the title report which is a document containing the key legal details and history of a piece of property found during a title search.
- If the title report calls for an identity statement from the seller, it is because there may be judgments that “may” belong to him/her or someone with a “like” name.
- Check to see if any major improvements have been done to the property that required a contractor or subcontractor completed within the last six months and that has not been paid for. If so, notify your escrow officer asap as there will be additional requirements requested through the title report schedule B that will have to be cleared prior to transferring the title to the buyer.
- If the contract calls for home warranty, make sure the home warranty invoice is submitted to escrow 10 days prior to closing.
- Review the HOA escrow demand statement in the event there are violations that the buyer may inherit if the seller has not cleared the violation prior to closing.
What is the life/timeline of an escrow?
Here is a step 10 simple steps outlining the life of an escrow:
- Find a real estate agent & lender
- Find or list home/property
- Complete property inspections
- Sign the contract and open escrow
- Review title commitment or preliminary report
- Respond to requests for information and paperwork
- Sign loan documents and closing paperwork
- Deliver invoices and info to lender/escrow officer
- Deposit closing funds via wire transfer
- Buyer gets keys and seller receives funds
What to do if you suspect wire fraud?
Here are valuable tips for wire fraud recovery:
- Contact your bank and have a “fraud alert” sent to the bank that received your wire.
- File a complaint with the FBI’s Internet Crime Complaint Center
- Contact local FBI field office and provide the IC3 complaint number
- For enterprise frauds, contact legal counsel to determine if an injunctive order is necessary.
- Contact all banks that may have also received your funds
- For enterprise frauds, contact your insurance carrier
- Contact local authorities and file a police report
- For enterprise frauds, contact your security team, IT department, or consultant and initiate “The Information Technology Kill Chain.”
For more information on wire fraud and what to do if you suspect you are a victim, check out our blog post on the topic.
What should you do if you get hacked during the escrow process?
Unfortunately, hackers are looking for wire transfer emails, which can put you at risk of becoming a victim of this crime. The most common attack is through a “phishing” email that looks to be from a real estate agent, lender or escrow officer with a link to documentation such as loan documents, escrow paperwork or other information. If the link is clicked, malware infects the email system and the hacker gains access to all incoming and outbound emails, signatures, forms, etc. If you suspect you have been hacked, here are 5 steps to take:
- Change your password
- Reclaim your account
- Enable two-factor authentication
- Check your email settings and turn off auto-forward; if you don’t turn off the auto forward a hacker will continue to get emails forwarded to them and they no longer need password to access information
- Scan your computer for Malware.
For more information on what to do if you suspect you have been hacked, check out our blog post