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What is Title Insurance?
Title Insurance protects the real estate owner and their lender (if applicable) against loss or damage they might experience against their property due to defects in title, liens, or encumbrances (such as, but not limited to, forged and/or fraudulent documents, prior owner’s heirs, dower and curtesy rights, unreleased mortgages or liens). Each title insurance policy is subject to specific terms, conditions and exclusions.
Owner’s Title Insurance is risk elimination in order to avoid title claims and loss in the future. A title insurance policy insures the title up to the date the Owner acquires interest in the property and is effective for as long as that owner and their heirs have an interest in the property.
Should I obtain Owner’s Title Insurance?
Absolutely. Some of the title defects from prior owners which you would be protected against would be unpaid back taxes; forgeries, fraud; unrecorded liens and judgments; prior heirs; etc. This list is not a complete list of title defects which may occur, but is a good idea of why you should obtain and Owner’s Title Insurance policy.
Wouldn’t a title search reveal problems and defects?
Yes, a title search definitely will reveal problems and defects, however, there are some problems and defects that are not disclosed by a title search. Even the most experienced title examiners would not be able to discover during a search, as these items may not be of public record. Forgeries and fraud, and defective deeds, along with clerical errors are just a few of the items that may not be detected during the search.
What if I cannot be present at the closing?
A power of attorney will be required. This document must be approved prior to closing by the closing agent’s underwriter and if for the purchaser their mortgage lender as well. The power of attorney usually will be required to be specific to the property being sold/purchased.
What is the cost of title insurance?
The title insurance premiums for the state of Florida a promulgated by the state based on the purchase price of the home. The title insurance premium is paid at the time of closing and, unlike most insurance, is a one-time fee and is effective for as long as you or your heirs own the property.
Should I shop for a title/closing company?
Yes, although the title insurance premiums are regulated by the state, closing fees differ from title company to title company. These fees may included, but are not limited to – title search fees, closing fees, survey fees, courier fees, wire fees, etc. You want to make sure you are paying reasonable fees for the best service possible
How are closings costs paid?
There are closing costs to each side of the transaction. Based on how the contract is written will determine who pays certain charges. It is the custom that the closing fees are divided as shown below in Palm Beach County:
Buyer: Closing Fee; Survey, as applicable; Lender’s Title Insurance and Endorsements; Recording Fees; Doc Stamps and Intangible tax on the amount of the mortgage; Pest Inspection and Home Inspections as applicable. NOTE: Cash transactions will not require a charge for lender’s title insurance; endorsements and doc stamps and intangible tax as well as other fees, check with your closing agent.
Seller: Closing Fee; Owner’s Title Insurance; Title Search; Municipal Lien Search; Estoppel Fees; State docs stamps on purchase price for deed; taxes, which are prorated at the time of closing; HOA/Condo dues, which are prorated at the time of closing.
What will I be required to bring to closing?
Current photo ID (driver’s license; passport, etc.) A cashier’s check for the balance due, or confirmation the funds have been wire transferred; the original power of attorney if applicable. Your closing agent will contact you at least 24 hours prior to the closing to confirm the time, location, final amount due and all items to bring to closing.
What Does Title Insurance Cover?
Title Insurance covers/protects against claims for defects to the title. A title defects may be, but not limited to, another party claiming an ownership interest in the property, fraud, forgery, encroachments, liens, improperly executed or recorded documents, and other matters which are specified in the title insurance policy.
What steps are taken to ensure title is insurable?
The Title Agent begins by having a search of the public records completed. The examination of the search is then conducted by the title agent on behalf of its underwriter and determines if the property is insurable. The title search reports fully all material objections to the title. A chain of title which is the history of the documents transferring the title is reported from the records in the search. Below are some examples of documents that can present concerns when examining the title:
- Deeds, Wills and Trusts that contain incorrect names or wording;
- Open mortgages and judgments, or a lien for unpaid taxes;
- Pending legal action against the property that could affect the purchaser;
- Easements allowing the construction of a road or utility line;
- Incorrect notary acknowledgments or missing witnesses
Through the search and examination title problems are disclosed so they can be corrected whenever possible. However, even the most careful preventative work cannot locate all title hazards. Below are some examples of a hidden title hazard:
- Forged signatures of the deed which would mean no transfer of ownership to you
- Unknown heirs of a previous owner who is claiming ownership to the property
- Mistakes in the public records
- Documents executed under an expired or improper power of attorney
The title insurance policy offers financial protection against these and other covered title hazards. The title insurer pays for defending against a claim on title as insured and will either perfect the title or pay valid claims. This is all for a one time promulgated rate premium that is charged at the time of closing.
FIRPTA Withholding (Foreign Investment in Real Property Tax Act)
The Foreign Investment in Real Property Tax Act (FIRPTA) has a recurring presence in our market area due to the number of foreign sellers conveying property.Listing Agents should cover this topic when reviewing the listing agreement (Paragraph 5 Seller’s Obligations (e), Line 78) with all Seller clients. All Sellers are presented with a Non-Foreign Affidavit for execution at the closing. No withholding is required as long as all Sellers are able to execute the affidavit. United States citizens and resident Aliens (for U.S. tax purposes) are not subject to FIRPTA withholding. If a Seller is subject to FIRPTA withholding at least 10% of the sales price must be collected on the HUD-1 settlement statement and remitted to the IRS within 20 days after closing. The issue of the 10% withholding is best to know about and plan for it when the listing is undertaken. Seller’s may apply for a withholding certificate from the IRS (using form 8288-B) stating that no withholding is necessary. If the seller wishes to do this, they should begin the process immediately as it may take several months to complete.
Needless to say, short sales with an added 10% withholding on the HUD-1 settlement statement are going to be difficult to get approved by the Seller’s lender.
When presenting the contract please be aware of Paragraph 10 (i) Line 228 and Standard V, Line 521, of the FARBAR Contract, revised 7/2013, which addresses FIRPTA.
One notable exception to withholding is if the sales price is not more than $300,000.00 and the Purchaser will be residing in the property as their homestead residence.
GLOSSARY OF REAL ESTATE TERMS:
Annual Percentage Rate (APR)
An interest rate reflecting the cost of a mortgage as a yearly rate. The APR is likely to be higher than the stated rate in the Note or Mortgage because it takes into accounting the points, credits and costs.
An evaluation of the property done by a qualified appraiser which estimates the value of the property.
An individual in the mortgage business who assists buyers/borrowers in arranging for funding or negotiating rates for buyers/borrowers. A broker or brokers company does not loan the money. Brokers are generally paid from the loan original fee.
Capital Gains Tax:
The taxable profit from the sale of a capital asset. The capital gain is the difference between the sales price and the basis of the property after the appropriate adjustments for closings cost, upgrade, repair expense, allowable depreciation, etc. You should always consult a CPA or tax attorney with questions in regard to capital gains taxes.
The meeting between the buyer, seller, lender, real estate agents and title company to sign the required documents to transfer the property and obtain the loan. The Closing Agent generally handles the signing and funding of the transaction.
A mortgage not insured by FHA or guaranteed by the VA or Farmers Home Loan (FMHA)
Debt to Income:
The ratio expressed as a percentage which results when a borrower’s monthly payment obligation on long-term debts is divided by net effective income or gross monthly income, depending on the type of loan.
Failure to make payments on time. Delinquency may lead to foreclosure.
The money paid to make the difference between the purchase price and the mortgage amount. Down payments are usually between 5-20 percent of the sales price. The down payment amount may be based on the type of loan.
Earnest Money (Escrow Deposit):
The money given by the buyer, generally to the real estate agent or closing agent as a part of the purchase price to bind the transaction.
The portion of the buyer’s/borrower’s monthly payment that is held by the lender to pay the taxes, hazard and/or flood insurance, mortgage insurance, etc. as they become due.
Insurance which protects the buyer/borrower from specific losses, such as fire, windstorms, etc.
A calm upon a prence of property for the payment or satisfaction of a debt or ob ligation.
Loan to Value:
The ratio of the mortgage principal to the appraised value (selling price) of the property.
Highest price a buyer would pay or the lowest price a seller would accept for the property. Market Value may be different from the sales price a property may actually be sold.
The pledge to secure a debt by a written instrument given by the buyer/borrower for real property. This document must be recorded in the Clerk of the Court of the county in which the property is located.
A written promise to pay a certain amount of money.
Fee charged by the lender to prepare loan documents, do credit checks and inspections of the property. This amount is usually computed as a percentage of the face value of the loan.
Principal, Interest, Taxes and Insurance. This is the monthly housing expenses.
Power of Attorney:
A legal document authorizing another party to sign on behalf of a person. Most powers of attorney must be specific to the property and/or transaction.
The amount of debt without including the interest due on the loan.
Private Mortgage Insurance:
If a buyer does not have a 20% down payment the lender will allow a smaller down payment, however the borrower is required to have private mortgage insurance which requires a monthly premium payment to the lender.
A Real Estate Broker or an Associate holding an active membership in a loca real estate board affiliated with the National Association of Realtors.
Money paid to the County where the property is located based on the sales price and/or mortgage loan amount.
Real Estate Settlement Procedures Act.
Document that gives evidence of an individual’s ownership in real property
An insurance policy that protects the insured, owner and lender against losses arising from defects in title.
Examination of the public records that determines the legal ownership of property.)
Truth In Lending:
Federal Law requiring disclosure of the APR (Annual Percentage Rate) to the buyer/borrower after application for the loan is completed.