Reduce closing costs by having a basic understanding of title insurance which could save you hundreds or even thousands of dollars at settlement. What is title insurance? Title insurance protects the homeowners from unforeseen or unknown events or circumstances that adversely affect the title or their beneficial use and enjoyment of their new property.
A standard title insurance policy covers claims that arise from events that existed at the time you bought your home. These events can include forged documents and documents signed by persons posing as another, or who lack the mental competency, capacity or legal authority to sign. These standard policies also cover you if claims are made by persons who should have been included in a deed but were not, such as co-owners, heirs, spouses, corporate officers or business partners.
An enhanced policy may be bought at the time you settle on your purchase. This policy is referred to as a “homeowner’s” title policy. This policy protects you from additional title defects that were not readily seen by reviewing the recorded documents, such as claims for adverse possession or prescriptive easements; subsequent encroachments by neighbors; incorrect surveys; and silent liens, such as mechanics’ or estate tax liens. One particularly valuable feature provided n these enhanced policies is that they cover post-policy events. Enhanced policies also contain inflation protection.
Ask your settlement attorney whether you are eligible for a “reissue rate” or “substitute rate”. You must prove that the home’s title policy was issued within the previous 10 years. To do this, you must ask your sellers how long ago they bought the home. If it is 10 years or less, ask whether they purchased owner’s title insurance when they bought. If so, ask them for a copy of their owner’s policy and deliver it to your settlement attorney.
Another way to determine whether the home is insured is to look at Section 1100 “Title Charges” on your seller’s original HUD-1 settlement statement. It will show whether the sellers bought owner’s coverage and, if so, how much. If eligible, you can receive as much as a 40 percent discount off your new title
insurance premium, thereby reducing closing cost expenses. These discounts apply to both owner’s and lender’s policies. The actual discount amount varies depending on your seller’s original purchase price and your current purchase price.