There are two reasons people purchase any type of insurance. One is protection against unknown or undesirable circumstances, also known as peace of mind. The other is because you have to. In the case of property title insurance it could be both.
The purchaser of real estate needs protection against serious financial loss due to a defect in the title to the property purchased. For a single, one-time premium, which is a modest amount in relationship to the value of the property, a buyer can receive the protection of a title insurance policy – a policy that is backed by the reserves and solvency of the Company. A title insurance policy will cover both claims arising out of title problems that could have been discovered in the public records.
A title insurance policy will not only protect the insured owner, but also that person’s heirs for as long as they hold title to the property, and even after they sell by warranty deed. The Company will not only satisfy any valid claim made against the insured’s title, but it will pay for the costs and legal expenses of defending against a title claim.
The standard title policy does not cover against false claims, which is a weakness. Many events beyond a Berks County home buyers control can reduce the value of the home after you own it. If it is a newly-constructed house, sub-contractors claiming they had not been paid by the builder may place a lien on the house. Identity theft can result in a new mortgage you know nothing about. A neighbor could build on your land without your knowledge, thereby adversely possessing and possibly eventually taking your land. Or you may suddenly be told that you must correct a zoning violation of a previous owner. The solution is an enhanced policy (normally 10% more cost). This type of policy is standard in California and is also known as an ALTA policy. The ALTA policy increases, (coverage not cost), by 10% a year for the first 5 years after issuance, to 150% of the initial amount. This protects homeowners as their home value inflates over the years.
If you need a mortgage to purchase a Berks County home the Lender will require that you purchase it. One thing many are not aware of is that the Lender only requires that you insure the title to the amount of the loan amount and not the full price of the property. This is so their investment is protected. If you are not financing your purchase you do not need title insurance.
Title insurance is normally paid at the settlement of the home. In Pennsylvania title insurance rates are governed by the State. The difference form company to company is the strength of their underwriter and the level of service they provide. Title insurance companies here in Berks County do many things. They hold settlement, Provide escrow options, and conduct conveyancing duties plus many other things.
It is my opinion that Berks County home buyers should understand how title insurance works for them. In too many cases the home buyer is led to a title company by their agent. This is because of a thing called an Affiliated Business Arrangement or ABA. This is a separate title company that issues shares of a title company to real estate brokers and agents. The brokers and agents get royalties from the business.
Ask your agent if they belong to an ABA. They will likely lead you to use them. They benefit financially if you do. This is not a bad thing but should be disclosed properly. Look for the ABA disclosure which most Real Estate companies have.
I do not belong to an ABA. I think it is better to use a title company that best suits my buyer and seller. This is the company that will give the best service and is backed by firm underwriting. I have been a member of ABA’s in the past. The service is much better when the title company is keeping their share of the dollars they make instead of paying them to me. In place of these dollars my customers get great service and I get additional support from the title company. The cost is the same to you, the Berks County home buyer.
One example is timing. I like to have the title report right in the beginning of a transaction. This prevents my buyer customer from spending money on home inspections and the like just to find out there is a title issue that the home seller needs to resolve before the home can be sold with a special warranty deed. This is just one example.
There are rule changes coming relating to the ABA relationships. The CFPB rule changes may discourage many of these most times smaller companies to soon disappear. Stay tuned
I would like to personally thank Dave Wierzbicki of Edge Abstract, Berks County for his information and assistance with this information.
Jeffrey C. Hogue