Mortgage lenders require title insurance on every loan they close which protects them against problems with the title. However, this type of insurance does not protect the homeowner’s investment in the home.
The owner’s policy is separate and typically issued when the property is purchased. Even Clark Howard, the thriftiest person in Georgia, recommends getting owner’s title insurance! The Georgia Association of Realtors standard contract’s, default clause is that the buyer requests an enhanced policy be issued at closing.
When an owner’s and lender’s policy are issued at the same time, there is a significant discount on the premiums. It’s the smart and safe way to go.
Few things are more important than protecting a home. For a minimal cost, homeowners have the ability to reduce their risk on one of the most significant investments they will make.
There are two types of title insurance; owner and lender. Additionally, there are two types of owner policies and two types of lender policies.
The two types of owner’s policies are standard and enhanced. The enhanced includes coverage for 28 additional risks including the protection against anyone else making a claim on the property or title through fraud or forgery. This protection continues even after the closing date. Enhanced owner’s title insurance protects the owner against fake deeds and fraudulent claims against the property, even if those claims happen after the policy was issued.
The added protection that enhanced title insurance provides is well worth the small additional cost at the time of closing.
Homes purchased that are part of a bankruptcy can present unique challenges. There are also different types of bankruptcy which can make the transaction even more complex.
Under Chapters 7 and 11, the trustee is the appointed seller of the home. In most other cases, the owner is the proper seller. In either case, a court order authorizing the sale is typically required. When a home is part of a bankruptcy, it is likely to have other liens and debts attached to it. Did you know that eliminating a debt does not eliminate a lien? Once there’s a lien on the property, the lien must be removed in addition to any debt being eliminated.
When the property’s trustee accepts an offer, all of the lienholders will be notified and they will be given a chance to review the offer. You can see that there are major challenges that come along with buying real estate in bankruptcy. It’s important to know that title insurance can help to avoid a huge headache by checking the liens and insuring that, as a purchaser, you will not be stuck paying for a property that has several liens on it.
Imagine this: a couple buys a house in September, 2016. Unbeknownst to them, the seller opened an equity line of credit using the house as collateral in May. The title search was performed the buyer’s chosen closing attorney on September 20, perfectly in line with the usual process. The lender didn’t file the equity line mortgage until October 10 (five months after the loan was closed). The purchase closing took place on October 14 and the new deed was filed on October 19.
The October 10 mortgage would not have been on the record as of closing because it normally takes two weeks for filings to show up.
In March, 2019, the couple decides to refinance the purchase, and the closing attorney receives a copy of the settlement statement from the purchase. It does not show the equity line mortgage as being paid at all. This means the sellers have an open equity line secured by a house they no longer own — and the buyer’s house is collateral for a loan they didn’t take out.
This is a problem for the buyers, but the original closing attorney is not at fault.
It is fortunate that the buyers purchased title insurance. Before the refinance, the title company was contacted and provided an indemnity letter covering the open mortgage. The title insurance company will protect the house against any claim or foreclosure from the equity line. The refinance was not delayed at all.
Real Estate agents want work with a closing attorney who both understands title insurance and recognizes anomalies – like the absence of a mortgage payoff on a closing statement.
Estate attorneys often try to prepare deeds for their client, and it rarely turns out well.
In our office, we often see Executor’s Deeds, Quitclaim Deeds, or Administrator’s deeds on record captioned with this statement: “Estate Attorney prepared the deed without a title search”.
While recording a deed without a title search will save their client $150 at the time, it could cost 10 times that much to fix any problems that come up later. Instead of doing a title search, many estate attorneys rely on their clients to provide the previous deed and legal description. This is often an old deed, or even the wrong deed. Years later, they may find that the house belongs to some other heir entirely, and not be able to sell the property.
Estate attorneys will appreciate a connection to a knowledgeable real estate attorney who can perform a title search for any property in Georgia and prepare the deed.
Unpaid real estate property taxes never get “forgiven” or wiped out in a foreclosure.
They are super-liens that always have priority and stay attached to the property, no matter what. In some jurisdictions in Georgia, water bills in the name of the property owner enjoy the same super-lien priority as property taxes.
If a buyer purchases a home and the title search does not uncover a super-lien before closing, then the title insurance company should cover those delinquent taxes – provided the buyer bought an owner’s title policy.
Ultimately, the previous owner is liable for those taxes. But in the case of a foreclosure or a short-sale, it is very unlikely that anyone would be able to collect those taxes from the previous owner. If they had been able to pay the taxes, they would have done so.
Investors who buy distressed properties will want to be sure to investigate the existence of an unpaid tax- or water-bill attached to the property.
Real estate agents who work with investors will enjoy working with a closing attorney who has seen the fall-out from incomplete title searches and can limit exposure to unpaid liens through a complete title search.
Yes, title insurance covers liens, mortgages, or other claims filed in the public records against the property prior to the closing.
Here are two examples:
- A seller took out a Home Equity Line in July. The lender did not file the Security Deed/Mortgage until October 10th. The seller sold the property on October 14th. The Home Equity Line was not paid at closing because it would not have shown on the title search and the seller had forgotten about it.
- A landscaper working on the property filed a lien a week before closing for work he had done on the property. The closing went through without paying the lien.
The owner’s title insurance policy would cover both of these items for the buyer. “Gap” coverage is one more reason to make sure an owner’s title policy is part of the closing.
It’s important for buyers’ agents to have a closing attorney who can explain the whole closing process to buyers, including the protections provided by title insurance.