Why do I need Lender's Title Insurance?
Why do I need Lender's Title Insurance?You may wonder why you're not protected if the lender has title insurance and you didn't purchase the owner's policy. The lender made a huge investment on your part in return for your promise to repay the debt. Because their risk is generally larger than yours, financially speaking, they need to be protected from any title failure. The deed alone is not enough. In fact, the deed does not prove you own the property completely and totally. The seller of the property may have had their rights circumvented by an unscrupulous person who committed fraud or forgery. So, the title insurance covers the lender's investment should any litigation ever occur.
Owner's Policy. As discussed above, a lender's policy does not protect you. Similarly, the prior owner's policy does not protect you. If you want to protect yourself from claims against your new home, you will need an owner's policy. When a claim does occur, it can be financially devastating to an owner who is uninsured. For instance, let's say your fence was incorrectly placed on your neighbor's land. If the fence is on their property, then they could sue you for removal or take possession of the fence even though the seller thought the fence was placed on the land they sold to you. This is just a small example of why title insurance is important for your rights and security to your property.
The last thing you want or need to find out is that you made hundreds of payments on a home, which has title defects and may not legally be your property.
At Heritage Title, we now offer the most comprehensive title insurance policy in the industry today, a policy that protects the owner from not only pre-policy situations but now you, the owner are protected in the event of many post-policy problems such as encroachments and forgery. Many other improvements also make this policy the policy of choice.
Choice of Title Insurer. Although we think very highly of our services and staff members at Heritage Title, under RESPA, you are not required, as a condition of sale, to purchase title insurance from any particular title company. Generally, your lender will require title insurance from a company that is acceptable to it. In most cases you can shop for and choose a company that meets the lender's standards.
Review Initial Title Report In many areas, a few days or weeks before the settlement or closing of the escrow, the title insurance company will issue a "Commitment to Insure" or "preliminary report" or "binder" containing a summary of any defects in title which have been identified by the title search, as well as any exceptions from the title insurance policy's coverage. The commitment is usually sent to the lender for use until the title insurance policy is issued at or after the settlement. You can arrange to have a copy sent to you (or to your attorney) so that you can object if there are matters affecting the title, which you did not agree to accept when you signed the agreement of sale.
Reissue Rate If you are buying a home, which has changed hands within the last several years, ask your title company about a "reissue rate". A "reissue rate" is a charge for a title insurance policy if a previous policy on the same property was issued within a specified period. Reissue rates are less than the original charge. If you are buying a newly constructed home, make sure your title insurance covers claims by contractors. These claims are known as "mechanics' liens" in some parts of the country.
Survey Lenders or title insurance companies often require a survey to mark the boundaries of the property. A survey is a drawing of the property showing the perimeter boundaries and marking the location of the house and other improvements. You may be able to avoid the cost of a complete survey if you can locate the person who previously surveyed the property and request an update. Check with your lender on whether an updated survey is acceptable.
RESPA Disclosures One of the purposes of RESPA is to help consumers become better shoppers for settlement services. RESPA requires that borrowers receive disclosures at various times. Some disclosures spell out the costs associated with settlement, outline lender servicing and escrow account practices and describe business relationships between settlement service providers.
Good Faith Estimate of Costs. RESPA requires that, when you apply for a loan, the lender or mortgage broker give you a Good Faith Estimate of settlement service charges you will likely have to pay. If you do not get this Good Faith Estimate when you apply, the lender or mortgage broker must mail or deliver it to you within the next three business days. Be aware that the amounts listed on the Good Faith Estimate are only estimates. Actual costs may vary. Changing market conditions can affect prices. Remember that the lender's estimate is not a guarantee. Keep your Good Faith Estimate so you can compare it with the final settlement costs and ask the lender questions about any changes.
Servicing Disclosure Statement. RESPA requires the lender or mortgage broker to tell you in writing, when you apply for the loan or within the next three business days, whether it expects that someone else will be servicing your loan (collecting your payments).
Affiliated Business Arrangements. Sometimes, several businesses that offer settlement services are owned or controlled by a common corporate parent. These businesses are known as "affiliates". When a lender, real estate broker or other participant in your settlement refers you to an affiliate for a settlement service (such as when a real estate broker refers you to a mortgage broker affiliate), RESPA requires the referring party to give you an Affiliated Business Arrangement Disclosure. This form will remind you that you are generally not required, with certain exceptions, to use the affiliate and are free to shop for other providers.
HUD-1 Settlement Statement. One business day before the settlement, you have the right to inspect the HUD-1 Settlement Statement. This statement itemizes the services provided to you and the fees charged to you. This form is filled out by the settlement agent who will conduct the settlement. Be sure you have the name, address and telephone number of the settlement agent if you wish to inspect this form. The fully completed HUD-1 Settlement Statement generally must be delivered or mailed to you at or before the settlement. In cases where there is no settlement meeting, the escrow agent will mail you the HUD-1 after settlement, and you have no right to inspect it one day before settlement.
Escrow Account Operation & Disclosures. Your lender may require you to establish an escrow or impound account to assure that your taxes and insurance premiums are paid on time. If so, you will probably have to pay an initial amount at the settlement to start the account and an additional amount with each month's regular payment. Your escrow account payments may include a "cushion" or an extra amount to ensure that the lender has enough money to make the payments when due. RESPA limits the amount of cushion to a maximum of two months of escrow payments.
At the settlement or within the next 45 days, the person servicing your loan must give you an initial escrow account statement. That form will show all of the payments which are expected to be deposited into the escrow account and all of the disbursements which are expected to be made from the escrow account annually. That person will then send you a disclosure each year which shows the prior year's activity and any adjustments necessary in the escrow payments that you will make in the forthcoming year.
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