Tag Archives: owner’s title insurance

Same Name, So Many Types

Insurance … that covers a lot of area – from car insurance and liability insurance to health insurance and homeowner’s insurance.  There are a lot of insurance types out there and when you buy a house, there are a few you need to be familiar with.

My previous post discussed mortgage insurance.  This type of insurance may be required on your loan if you have less than 20% down with conventional financing or if you’re doing FHA financing.  It insures the lender in case you default and doesn’t cover you for anything.  Mortgage insurance is factored into your monthly house payment.

Flood insurance is another one that could possibly become something you need to understand.  Lenders will “pull” a FEMA (Federal Emergency Management Agency) flood certificate on all properties prior to financing them to confirm the house is not in a flood zone.  If it is in a flood zone, flood insurance will be required to be part of your house payment.

Title insurance is necessary for any loan that is being done in Minnesota.  There are two types of title insurance.  One is called lender’s title insurance which insures the lender in case any other liens come up against the property.  As lenders, we want to be in first lien position so if other liens arise, we are paid first.  Lender’s title insurance is paid by the buyer at the time of closing and the amount varies by title company, loan amount and purchase price.

The second title insurance out there is called owner’s title insurance and this would protect you.  It is optional and the cost is based on purchase price and loan amount, as well as the title company you’re using.  This is a one time fee paid by you at closing, so it’s not something that is “renewed” year after year.

Though you aren’t in a lien position, you may want to be protected if liens come up that weren’t incurred by you. When purchasing a home, one of the jobs of the title company is to search public records on the address you’re buying.  They want to make sure no liens exist so they can pass free and clear title to you.  If there are liens, the seller is responsible to pay these off at closing.  No one is perfect, so there could be liens out there that the title company doesn’t find as they may be improperly recorded at the county.  Liens follow the property address, not the person who incurred them.  So, when you go to sell or refinance and a new search is done, something could come up like this and you would either need to pay it off, go to court to fight the lien if it’s not yours or when you purchased, if you had bought the owner’s policy, you may be protected for instances like this.  Talking to a title company is the best way to learn more about the owner’s policy and their specific coverages.

Finally, there is homeowner’s insurance.  This is a little confusing because it actually is known by a few other names – hazard and property.  They all do the same thing – insure the property we will be lending on.  And lenders want to make sure the property is adequately insured.  The amount of coverage requirement will vary by lender and loan type so you will want to check with your lending institution.

Homeowner’s insurance is billed annually, and in many instances, will be part of your house payment depending on the loan type you’re doing and your down payment amount. It’s your responsibility to set up your annual policy with an insurance agent of your choice prior to closing.  The amount they charge will be part of your payment, and if you escrow your insurance in your payment, the renewals will be paid by the lender in the future on your behalf.  This annual premium amount is broken down to a monthly amount and added to your house payment.

What if you purchase a townhome or condo and the insurance is covered in your association dues? Do you need homeowner’s insurance in that instance?  The answer to this varies.  Most associations have insurance that covers the structure, so if it were to have damage, their coverage would insure that loss.  However, these policies don’t always cover cupboards, carpet, bathroom fixtures, etc., also known as “walls-in” or “all-in” coverage.  If they don’t have this, then you would need to purchase this policy, typically called an HO-6 policy and it would be included in your payment if the loan type you’re doing requires this.  If “walls-in” or “all-in” is part of their policy, then you wouldn’t need it for loan purposes, BUT, you will still want to purchase it to protect your personal belongings!

As you can see, when it comes to buying a home, there are a lot of insurance types to be familiar with. It can get a little confusing.  Hopefully, you will work with a lender that will help educate you on the requirements specific to your loan type.  As with ALL insurance related questions, please reach out to the appropriate provider or expert to answer questions you might have for your situation.

Confused Over Insurance?

Insurance is necessary.  Let’s face it, things happen and it’s best to be prepared.  There is life insurance,  health insurance, car insurance, renter’s insurance,  insurance for our pets and we even have insurance for the gadgets we buy.  Insurance is big business because you’re paying for the “what ifs” that occur.  I certainly hope you never have to use insurance, but you’re always thankful when you have it.

As a homeowner, or soon to be homeowner, there are many types of insurance and they can be a little confusing.  Let’s examine insurance types the lender will require you to have in order to obtain financing.

ID-100259033Hazard insurance — also known as homeowner’s insurance or property insurance.  This will insure you against loss or damage to your home.  Lender’s require that you carry insurance for as long as you have a loan, though continuing to insure your home, as long as you own it, is advised.  The property serves as security for the loan and the lender wants to protect this security.  In most instances, your insurance will be included as part of your monthly house payment, but the insurance agent is your choice.  The benefit of this insurance is not only to protect your home, but it also protects your personal belongings (to what extent will be determined by your policy).

Private Mortgage Insurance — also known as PMI or mortgage insurance.  If you have less than 20% down using conventional financing, the lender can require that you carry mortgage insurance.  I say “can” as there are a few first time buyer programs that don’t require this insurance even with less than 20% down.  Unfortunately, this insurance does nothing for you.  It insures the lender in case you default on your loan.  The lender will choose the mortgage insurance company, though most PMI companies are priced similarily.  At some point, you may be able to remove this insurance from your monthly payment, if you meet certain requirements.

FHA loans always have mortgage insurance.  This is NOT PMI as it is not purchased through a private company.  FHA insures their own loans and the insurance is required on all FHA loans regardless of how much you provide for a down payment.  This also insures the lender in case of default and is included in your house payment.  The insurance will remain on the loan for the entire term of the loan when you take out a 30-year loan.

Flood insurance is another type of insurance the lender may require; however,  the chances that you need this are slim to none.  All lenders require a flood certification to prove the home they’re financing is NOT in a flood zone.  If it is in a flood zone, the lender will require you to carry flood insurance on the home.  This will also be part of your monthly payment, if required.

Title insurance — lender’s policy and owner’s policy.  The lender’s policy is required to be purchased on all transactions in MN.  The cost of this is determined by the title company with whom you close.  It insures the lender that they always have first lien position to the property, even if another lien comes up against the home. The owner’s policy is optional to purchase.  It is very inexpensive insurance and is highly recommended.

Insurance is complicated, yet necessary, and there are countless options.  The more you understand the options and requirements  that are available, the better you’ll understand the process of buying your home!

*Image courtesy of Stuart Miles – freedigitalphotos.net

An Unseen Hazard with Buying a Foreclosure … the Deal that didn’t Close

With so many foreclosures in the marketplace, you are bound to purchase one.  Thing about foreclosures is the process can be a little trying.  There are a few reasons for this.  First, you’re dealing with a bank, so timeliness is not always a priority on their part.  You may not get a decision on your offer as quickly as you’d like.  Sometimes, banks will set a date purchase agreements are due requesting the “highest and best” offers.  This means they’re looking for multiple offers and in this instance, they may have originally priced the home lower than market to create this frenzy.  It is what it is and if it’s a home you want, you have to play by their rules.

Another thing you can expect with a foreclosure is an “as-is” addendum.  This means that you are buying the house without a seller’s disclosure and in most instances, the bank won’t fix anything if there are any issues with your inspection or appraisal.  Oh, and speaking of inspections … just because it’s sold as-is does not mean you can’t get one or make your offer contingent on one.  It’s still highly recommended.  Let me give credit to some banks out there.  Some WILL do repairs which can be beneficial to you.  Also, just because it’s bank-owned doesn’t mean you can’t ask the bank to cover some or all of your costs.  A good Realtor will be able to advise you on this aspect of your purchase agreement.

guy with houseThe reason a bank completes an as-is addendum, is they have no knowledge of the home.  They’ve never lived there and I’d be shocked if anyone from the bank has even been to the house.  So, if there was previous water damage, storm damage or anything that may negatively affect the home, they won’t know about it.  Typically, there is no personal property offered in these deals.  For instance, if the kitchen still has the appliances, they cannot guarantee they will be in the home when it transfers to you.  If they happen to be there when you move in — woohoo — extra bonus!

When working with the banks on these foreclosures, you can expect, in most cases, that the bank will require you to close with a title company they have chosen.  The bank will run all their transactions through this title company for ease and for familiarity.  Typically, the bank will offer to pay your owner’s title policy.  So you know, the bank may require you to close with their chosen company, though by law, you technically CAN choose your own company.  I would highly recommend you get a solid recommendation from your agent or lender.  Many title companies will adjust their fees to compete with the bank’s company.  I deal with title companies all the time and I know who performs and who could use a little work.  Those that can use a little work are not all bad.  There may be delays in getting paperwork or closing scheduled, but it eventually gets done.

Sometimes, it doesn’t.  Here’s what happened that should have never happened.  A recent transaction I had didn’t close on it’s desired close date and then didn’t close a week later.  It wasn’t the client’s fault.  It wasn’t due to financing — package and funds were there.  It wasn’t due to the Realtors not doing their job — they did all they could.  It ALL had to do with the title company.  This “title company” had no presence in MN.  The people were slow to answer emails and rarely answered phones.  They didn’t meet with clients, but sent a notary — very impersonal.  Not only that, the title work was “outsourced” which made matters worse.

Needless to say, we needed some paperwork, which took a few weeks to get after persistent emails and calls.  We needed the closing to be scheduled so we knew when to date the closing paperwork and the buyers knew when to be available — never was set.  Since we finally had the necessary paperwork, the agents and client set a date; we sent the package and wired funds.  It’s typical for the title company to provide a HUD to the lender for approval.  The HUD is the itemization of the settlement charges.  We spent the morning of the “rescheduled” closing date burning the phones up to the closer, as well as emailing.  Nothing.  Right after lunch, we requested the wire be sent back since there was no response or HUD.  Low and behold … a response with a request to give them some time as they are working on the HUD.  That was it, the last communication.  I am not sure why an extra week wasn’t enough time.  Come Monday we still didn’t have the wire back.

Seems pretty bad, huh?  It is unacceptable to have such poor communication.  In the 16 helpyears I have originated loans, I have NEVER experienced such disregard to all the people involved.  If you think the above is bad … the following is worse.  The family moved from their apartment, had their lives in a truck, their kids hours away with family and no place to go expecting to close on the date set in the purchase agreement.   So, that week the buyers had to pay to store their stuff and live in a hotel, with many days of frustration and uncertainty.  Who wants to go through this?  They didn’t deserve this.  The day the funds were at the title company, we waited … and waited … and the return calls never happened nor did the HUD arrive.  The buyers moved on and are now renting month to month.  They had to, had to provide a home for their children and stop waiting for a closing that wasn’t happening.  Why?  Because a title company couldn’t get their ducks in a row, didn’t have the same customer-focus as the others involved and didn’t have the desire to make it happen.

How could this have been prevented?  Bucking the system with the bank and choosing their own title company.  Does this mean everything would have been rosy?  Not necessarily, but it would have meant familiarity by those who matter — the buyers, agents and mortgage company.  It would  have meant the personal touch of having a person to talk to, someone to depend on and someone to sit across from who knows the programs and can explain the paperwork — not just a notary to stamp after each signature — which is how they planned to handle the signing.  These people could have saved hundreds, not to mention all the time lost in work, on the phone and away from their children.  How do they get that back?  How can they be compensated for what they lost?  They can’t and that is a shame.

Working with the right people doesn’t just mean your Realtor and loan officer.  EVERYONE involved in the transaction needs to have the same goals in mind … YOUR goals in mind.  This obviously includes the title company.  As you can see, they can make or break a transaction — a preventable situation.  I am hopeful that this family can get their lives back in order and I truly hope they can trust again to take that magical step of owning their first home.  They actually gave the title company one more shot and … of course, they still didn’t close.   I pray homeownership happens, as everyone deserves to own a home and more importantly, everyone deserves to be treated fairly, like they matter and be given the common courtesy of great communication.