Glossary
Title Insurance
Title insurance is an insurance policy that helps safeguard your property interests from losses that could occur if, following closing, you learn that another party can in some way lay ownership claim to your property.
A title insurance policy will protect the homeowner in the following ways:
- Protects the homeowner against losses due to title claims
- Covers potential attorney fees and costs in defending title
- Guards against clouds or defects on title that were not detected during the title examination or those inadvertently missed or overlooked by the examiner
- Mitigates errors in public records
- What if title problems arise after closing?
- In the event that complications with title become apparent following closing, the policy will cover your legal fees if you are required to defend your property in a court of law.
- In the event you lose the property, title insurance will remunerate you for financial loss up to the amount of the policy.
What variations of title concerns or problems are not covered by title insurance?
A title insurance policy does not provide coverage for deficiencies or defects that occur following your purchase of the property. Title insurance policies typically do not cover problems or concerns associated with easements, liens, and mineral and air rights.
Types of Title Insurance Policies
Types of Title Insurance Policies
Owner's Policy:
An owner’s title insurance policy is provided to the buyer. Protecting the buyer for the entire time of ownership, it is based on the sales price of the home. This type of policy is crucial in today’s market, as many homes have been foreclosed on and continue to have marketability issues.
In other words, It covers the full sale price of the property and provides loss protection for the owner. In the event an issue arises, the owner’s attorney fees and similar costs are covered
There are a myriad of reasons to have an owner’s policy, the most important of which are listed here:
- Forgery
- Fraud in the execution of documents
- False impersonations
- Incorrect representation of marital status
- Wills improperly probated
- Incorrect legal descriptions
- Unsatisfied claims not shown in public records
- Incorrect indexing of land records
- Clerical errors in recording legal documents
- Recordation of deeds after the death of the grantor
- An owner’s policy is a small price to pay for sound peace of mind
Lender’s Policy:
Typically issued for the mortgage amount. A lender’s policy covers the lender’s interests and provides compensation if a problem arises. Lender’s title insurance policies are charged with every transaction made to the associated property. Reissue rates are provided at each transaction as long as an owner’s policy was purchased
Advantages of Possessing Title Insurance
Advantages of Possessing Owner's Title Insurance:
- Mechanic’s liens not yet of record
- Forgery
- Fraud/misrepresentation regarding the provision of documents
- Unwarranted influence on or persuasion over a former owner or executor
- False impersonation by individuals claiming ownership rights to the property
- Incorrect or misrepresentation of marital status of former owners
- Missing or undisclosed heirs to the property
- Mistaken interpretation of wills and trusts
- Wills improperly probated
- Mental incompetence of former owners, which may rule a sale void
- Conveyance by a minor or other person legally incompetent
- Birth of heirs succeeding the date of a will
- Inadequate or incomplete surveys
- Inadequate or incorrect legal descriptions or documentation
- Deeds not delivered properly
- Unsatisfied claims against the property not revealed on record
- Deed effected under expired, misrepresented, or false powers of attorney
- Misunderstanding or confusion over similar or identical names
- Dower, homestead/courtesy, or other marital rights of former spouses or former owners
- Incorrect indexing of deed
- Clerical omissions or errors in the recording of legal documents
- Delivery of deeds subsequent to the death of a former owner
- Real estate tax authority errors or omissions
Title Search
A title search is an examination of public records to determine the legal ownership of a property and to identify any title defects (such as claims, liens, or encumbrances) that may affect the property’s title.
This process is typically performed by a title company or an attorney and is crucial for various reasons:
Ownership verification: A title search verifies the current owner of the property. This helps prevent potential fraud, ensuring that the seller has the legal right to transfer ownership.
Encumbrance identification: Title searches reveal any existing liens, mortgages, or other encumbrances on the property. Unpaid debts or legal claims can affect the buyer’s ability to obtain clear ownership.
Legal compliance: This ensures that the property complies with all local zoning regulations, building codes, and other legal requirements. Non-compliance could lead to legal challenges and financial setbacks.
Liens and encumbrances: The search aims to uncover any outstanding liens or encumbrances that may affect the property’s marketability. This includes mortgages, tax liens, utility liens, or any other claims that creditors may have against the property.
Easements and restrictions: The title search investigates any easements or restrictions that may limit the property owner’s rights. This could include shared driveways, utility access, or neighborhood covenants that dictate certain rules or limitations.
Judgments and litigation: The search will also aim to identify any legal judgments, lawsuits, or pending litigation involving the property. These issues can potentially impact the transfer of ownership or result in financial obligations for the buyer.
Boundary disputes: The title search examines surveys and maps to ensure there are no boundary disputes or encroachments affecting the property. This step is crucial to help avoid future legal disputes.
Many other issues around the property and owner
Common Hidden Risks involved during Title Search
Title defects can manifest as outstanding liens, unpaid taxes, errors in public records, undisclosed heirs, or other encumbrances that may impede the clear transfer of ownership. Defects can pose significant risks to a person’s property by creating legal and financial uncertainties. Some of these common hidden risks include:
Liens and mortgages
One of the most common risks uncovered during a title search is the presence of outstanding liens or mortgages on the property. These financial encumbrances can hinder the transfer of clear title and typically require resolution before the sale can proceed.
Easements and restrictions
Title searches also reveal any easements or restrictions on the property. Easements grant others the right to use or access the property for specific purposes, while restrictions may limit how the property can be used. These can affect the buyer’s intended use of the property.
Unpaid taxes
Outstanding property taxes are a significant concern for both buyers and sellers. A title search will uncover any delinquent tax payments, preventing surprises and potential legal ramifications.
Deeds & Types
Deed
A deed is a legal document that transfers the ownership of a property from one party to another. It is a written instrument that outlines the specifics of the transfer, including the names of the parties involved, the legal description of the property, and any conditions or covenants that may apply. The deed serves as evidence that the transfer of ownership has taken place. There are several types of deeds, each with different implications for the transfer of ownership.
Warranty Deed
a warranty deed guarantees that the seller has a clear title to the property and the right to sell it.
Quitclaim Deed
The quitclaim deed, also called a non-warranty deed, offers the grantee the least amount of protection. This type of deed conveys whatever interest the grantor currently has in the property—if any. No warranties or promises regarding the quality of the title are made
General Warranty Deed
The general warranty deed offers the grantee the most protection. With this type of deed, the grantor makes a series of legally binding promises (called covenants) and warranties to the grantee (and their heirs) agreeing to protect the grantee against any prior claims and demands of all persons whomsoever in regards to the conveyed land.
Administrator's Deed
This may be used when a person dies intestate (without a will). A court-appointed administrator will dispose of the decedent's assets and an administrator's deed may be used to convey the title of real property to the grantee.
Executor's Deed
This may be used when a person dies testate (with a will). The estate's executor will dispose of the decedent's assets and an executor's deed may be used to convey the title or real property to the grantee
Sheriff's Deed
This is given to the successful bidder at an execution sale held to satisfy a judgment that has been obtained against the owner of the property. The grantee receives whatever title the judgment debtor has.
Tax Deed
This is issued when a property is sold for delinquent taxes.
Deed in Lieu of Foreclosure
This is given by a borrower who is in default on a mortgage directly to the lender. This serves to prevent foreclosure proceedings, and if the lender accepts the deed in lieu of foreclosure, the loan is terminated. Many lenders prefer to foreclose in order to clean up the title.
Deed of Gift (Gift Deed)
This is used to convey the title on real property that is given for no consideration or for only a token consideration. In some states, the gift deed must be recorded within two years or it becomes void.
And many more types of deed depending on the way the real property transaction is accomplished
Encumbrances
Encumbrances are any claims, charges, or restrictions that limit the property owner’s rights to use or transfer the property. In addition to liens, encumbrances can include easements, restrictions, covenants, and conditions imposed by previous owners or local authorities. Easements, for instance, give others the right to use a portion of the property for specific purposes, such as utility companies accessing utility lines.
A Claim, right or lien upon the title to real estate held by someone other than the real estate owners.
Liens can be Mortgage, Deed of Trust, Mechanics Liens, Local Taxes, Assessments, Judgments, attachments, etc.
Encumbrance documents which create a Lien or some kind of obligation against the ownership of real property. In the event the owner of the property fails to perform the obligation his/ her interest will be sold to meet the obligation he or she has created.
There are two types of encumbrances. They are:
1. Voluntary Encumbrances
2. Involuntary Encumbrances
Voluntary Encumbrances
Some of the those common liens or obligations are:
1. Deed of Trust
2. Mortgage
3. Contract of Sale
Involuntary Encumbrances
1. Judgments
Abstract of Judgment
Support Judgment
Federal Judgment
2. Lis Pendens
3. State Tax Lien
4. Federal Tax Lien
5. Anti-Terrorism Lien
6. HOA Lien
7. Mechanic's Lien
8. Notice of Housing Code Violation
9. City/County Lien
10. Bankruptcy
Deed of Trust
It is a written document, by which the title to land is conveyed as security for the repayment of a loan or other obligation.
A deed of trust is different from a Mortgage. A deed of trust has three parties involved:
Trustor — borrower
Trustee — an intermediate person who acts on behalf of
beneficiary and Trustor
Beneficiary — lender
TRUSTOR:
The person who borrows money, using a loan note which is secured with a deed of trust against his/her interest in real property. The trustor has the right to reside in the property, and continued
enjoyment and ownership of it. The trustor retains ownership of the property subject to the lender's interest.
When the trustor does not make required payments to the lender, the deed of trust will fall into default. Defaulting on a deed of trust damages the trustor’s credit and may result in foreclosure.
The Trustee is an intermediate third party who acts on behalf of the beneficiary and trustor.
The trustee is the person or entity to which legal title is conveyed by the trustor. The trustee acts on behalf of the Trustor when the terms of the deed of trust have been met, and paid in full, by reconveying the loan. The Trustee acts on behalf of the beneficiary when the loan defaults by proceeding with the steps of the foreclosure process.
In many states there are restrictions on who can be a trustee some examples of those commonly allowed are:
0 Title Companies
0 Attorneys
0 Mortgage or Banking institutions
Beneficiary:
The beneficiary is the lender of the monies under a loan note secured by the Deed of Trust.
The rights of the beneficiary are to receive payment for the loan, in accordance with the terms of the loan note. Other rights that they have may include:
a. The right to transfer interest to a third party (Assignment)
b. In some states the right to sue the borrower personally to pay the debt
c. The right to enter into possession of the property or to exercise the power of sale if the borrower defaults in making the necessary payments under the deed of trust (foreclosure).
Key Elements of Deed of Trust
Following are the key elements of the Deed of Trust.
0 Legal Description
0 Address
0 Loan Amount
0 Parcel Number
0 Loan Number
0 MIN Number
0 Riders
Types of Deed of Trust
There are various types of deeds of trust. Language, and agreements within the document provide details about its purpose, property, loan note and what requirements and exceptions may be necessary.
1. Purchase Money Deed of Trust
2. All Inclusive Deed of Trust
3. Construction Deed of Trust
4. Home Equity Deed of Trust
5. Fictitious Deed of Trust
Purchase Money Deed of Trust:
A purchase money deed of trust is deed of trust used to initially purchase a piece of property. In many States purchase money deeds of trust have special priority.
It will be recorded concurrently with the Deed where borrower is acquiring the interest in the real property.
In these States judgments and liens against a buyer purchasing the property would attach to the property in a lower priority position than the purchase money deed of trust.
All-Inclusive Deed of Trust
An All-Inclusive deed of trust is a junior deed of trust, which includes the amount due to the beneficiary and also includes the unpaid principal balances of a prior superior deed of trust(s).
The "All-Inclusive” Deed of Trust is also called a "Wrap-Around", a "Hold Harmless”, or an ”Over-riding” Deed of Trust.
In this case, there will be first deed of trust on the property that is superior to the all-inclusive deed of trust. The prior owner is the grantor on the first position deed of trust.
The second deed of trust will be All-Inclusive Deed of Trust and contains the reference information for the first deed of trust. Filed reconveyances should be present for both loans or the unreleased loan should be shown in the report.
Construction Deed of Trust:
A Construction deed of trust is any loan where the proceeds are used to finance construction of some kind. These loans generally call for draw amounts throughout the project and result in the eventual borrowing of the entire loan amount.
The loan may contain provisions for only partial repayment throughout the construction period and may require a replacement loan or modification of the construction loan when the construction project is complete.
Identifying constructions loans is important because they indicate that the property is more susceptible to mechanic's liens.
Home Equity Deed of Trust
A Home Equity deed of trust is a loan given to the borrower based on equity that exists in the property.
A home equity loan may be in any priority position but they are most commonly found in second position.
A Home Equity Line of Credit known as a HELOC, LOC, or Line of Credit is a loan in which the lender agrees to lend to the borrower up to a maximum amount within an agreed time period defined by the terms of the loan.
Fictitious Deed of Trust
A fictitious deed of trust is a blank long form (template) deed of trust that is recorded with a county. It contains general provisions but names no parties or property. However, it may be referenced by other short form deeds of trust to ’’include’’ the terms of the longer form.
It is most commonly used in Bank and Financial Institutions.
Associated Documents of Deed of Trust
There are other documents which are associated or related to the Deed of Trust. They are:
1. Assignment of Deed of Trust
2. Substitution of Trustee
3. Assumption Agreement
4. Modification Agreement
5. Subordination Agreement
6. Assignment of Leases and Rents
7. Reconveyance
8. Request for Notice
9. Notice of Default
10. Notice of Trustee's Sale
11. Notice of Recession
Assignment of Deed of Trust
It is a written document where the beneficial interest is transferred from one lender to other. The person transferring the beneficial interest under a Deed of Trust is called Assignor. The person receiving the beneficial interest under a Deed of Trust is called Assignee.
Substitution of Trustee
Substitution of Trustee is executed by beneficiary of record to substitute or appoint new trustee to act on behalf of themselves when the existing trustees fails to perform or refuse to act behalf of beneficiary.
Assumption Agreement
It is an agreement where the buyer assumes or agrees to pay the existing loan on seller. This occurs when the title to the property secured by the Deed of Trust is conveyed to the new buyer.
Modification Agreement
It is a document in which the terms and provisions set forth in the Deed of Trust are modified. The modified terms should be agreed by both lender and borrower.
Subordination Agreement
A written contract in which a lender or other holder of a monetary interest in the property agrees to subordinate their interest in the property to a new lender or interest holder. This gives the new loan/monetary interest holder priority in the event of foreclosure.
Assignment of Leases and Rents
It is an additional security under which the rents or other income from the encumbered property can be received directly by the lender in case of default in the payment of installments by borrower.
Reconveyance
The release from a Deed of Trust by the trustee to the owner of real estate in the form of a deed of Reconveyance to cancel the Deed of Trust, when the underlying loan has been paid. There are two types of reconveyance.
Partial Reconveyance: It is executed only when a part of loan has been paid.
Full Reconveyance: It is executed when a loan has been paid in full.
Request for Notice
A recorded document requiring a trustee send a copy of a Notice of Default or Notice of Sale concerning a specific deed of trust in foreclosure to the person who filed the document. Request for Notices are used in Trustee Sale Guarantee(TSG) and foreclosure reports.
Notice of Default
A notice of default is a notification given to a borrower, recorded, and often published stating that the borrower has not made their payments in accordance with the terms of the Deed of Trust.
Notice of Trustee's Sale
It is a public notice describing the time and place of the foreclosure sale. It is usually issued by the Trustee if the Trustor defaults to pay the payment due after 90 days of issuance of Notice of Default.
Notice of Recession
It is a document executed to cancel Notice of Default or Notice of Trustee's Sale if the defaulted installments has been paid.
Mortgage
A mortgage is a written document by which real property is given as security for repayment of a loan or other obligation. A Mortgage is different from a deed of trust. A mortgage involves 2 parties:
1. Mortgagor - borrower
2. Mortgagee - lender
Mortgagor:
The person who borrows money, using a loan note which is secured with a mortgage against his interest in real property.
Mortgagee:
The mortgagee is the lender of the monies under a loan note secured by the mortgage.
Mortgage Types
Reverse Mortgage:
Reverse mortgage” is a term we seem to hear more of today. Created for senior adults aged 62 and older, a reverse mortgage (also known as a Home Equity Conversion Mortgage) allows a homeowner to cash out a portion of the equity in their home. Borrowers can elect to receive their funds on a monthly basis or in a lump sum, depending upon the loan type. According to Reversemortgage.org, the amount received depends upon factors that include the age of the homeowner(s), appraisal value of the home and current interest rates.
A reverse mortgage can be a supplemental income source for senior adults, allowing homeowners to liquidize home equity with the promise of no monthly mortgage payments. Reverse mortgages often are used to cover general living expenses, home renovations, medical bills and even to pay off an existing mortgage.
The balance of a reverse mortgage loan is paid when the last surviving homeowner vacates the property or passes away, and the heirs sell the home. The proceeds of the sale are then used to repay the balance of the reverse mortgage, and any remaining equity is passed on to the homeowner’s heirs.
Key Factors of a Reverse Mortgage
- Insured by the Federal Housing Authority
- Issued by a mortgage lender
- Applicants must attend credit counseling
- Minimum age requirement is 62 (youngest borrower)
- Property must be primary residence
- No monthly mortgage payments
- Utilizes a property’s equity as loan collateral
- Structured as a refinance or new purchase loan
- Fixed and adjustable rates available
- Taxes, property insurance and HOA fees paid by borrower
- Condition of property must be maintained
- Must be the only lien on the property
- Interest accrues (compounds) throughout the life of the loan
- Interest paid only on amount received (at repayment)
- The Closing Process for a Reverse Mortgage
Closing on a reverse mortgage varies a bit from traditional real estate settlement. In place of the Closing Disclosure (CD) Form, a HUD Settlement Statement is used to itemize fees and other details pertinent to this form of loan. Mortgage Insurance Premium (MIP) is 2% of the home’s appraisal value or FHA lending limit ($679,650), whichever is less. Servicing fee set-aside is processed during closing, deducted from the proceeds of the loan and used to cover anticipated costs of servicing the loan throughout amortization. Remaining closing fees are generally comparable to those standard to any other type of mortgage, and vary by lender; however, additional fees and documentation may also apply
Mortgage types, associated
Liens
Liens are a common type of title defect that can interfere with the transfer of ownership rights surrounding a real estate property. Essentially, a lien is a security instrument representing a creditor’s (or legal entity’s) interest in a property as collateral for a debt. If the lienee fails to uphold their end of the obligation, the creditor has a legal claim to the property in some capacity. In a number of cases, unresolved liens impede the process of transferring the deed of a property to a new party, creating a title defect or barrier to closing.
Common Types of Liens
Liens may be held by financial institutions and additional creditors, government municipalities, tax authorities, and other parties. Some of the most common types of liens include:
- Mechanic’s liens
- Tax liens
- Judgment liens
- Bank (mortgage) liens
- Child or spousal support liens
- HOA (homeowner association) liens
Will a title search identify unresolved liens?
During the settlement process, a title agent or an attorney will conduct a thorough title search in an effort to identify conditions that may prevent ownership transfer or jeopardize a homeowner’s property rights. Since liens are recorded in public records, a title search should generally uncover any outstanding liens associated with the property.
How are liens resolved?
Liens may be resolved in a number of ways, which are largely based on the nature of the lien. In many cases, liens must be paid off or satisfied according to the lien holder’s discretion before being released. Sellers may also attempt to negotiate the dollar amount of a lien into the contract price of the property. Liens recorded erroneously may be disputed through legal proceedings. The manner in which liens are resolved may also vary by state or municipality.
Judgments
A Judgment is the official decision of a court at the completion of a lawsuit. It indicates the decision of the court which may include monetary amounts awarded to any of the parties as a resolution to the suit. Judgments can be monetary, and/or non-monetary, and can be in favor of either the Plaintiff or the Defendant.
Below are the most common types of judgment.
Abstract of Judgment
An abstract of judgment is a document provided by either the court clerk or attorney that is used to prove that a judgment has been entered. The abstract is a summary of the monetary award that can be filed in another jurisdiction within the state.
Support Judgment
The Judgment that is issued in the event of divorce and the non-custodial parent is asked for the support and maintenance of the child till they reach adulthood and the husband is also asked to pay for the support and maintenance of the divorced wife.
Federal Judgments
A Federal Judgment is any judgment issued in favor of the United States or any of its agencies. They are usually abstracts of federal judgments filed in courts and counties where the property resides.
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