Understanding Closing & Title Insurance Costs & The Settlement Process

Wednesday, March 13, 2013


Part 2 of 6 part series on Title Insurance

It's the big day and you go to the attorney or title escrow company to sign your name on the dotted line, hand over a check, and prepare to take ownership of your new home. The day of the dream has some other obligations though, as you and the seller pay "closing" or settlement costs. This accumulation of separate charges paid to different entities for professional services associated with the buying and selling of real property can seem complex and daunting.

How do you know that you are not paying too much of these “fees”?

We want you to enjoy this day, with minimal uncertainty and stress, so to help you better understand this confusing subject, the professionals over at Title Guarantee, Inc. have answered some of the questions most commonly asked about titles and closing costs.

What services am I paying for in closing costs?

You will usually be paying for vital things such as real estate commissions, appraisal fees, loan fees, escrow charges, advance payments on things like property taxes and homeowner's insurance, title insurance premiums, pest inspections, and the like.

How much should I expect to pay in closing costs?

The amount you pay for closing costs will vary; when buying your new home and obtaining a new loan, an estimate of your closing costs must be provided to you after you submit your loan application, pursuant to the Real Estate Settlement Procedures Act. This disclosure provides you with a good faith estimate of what these closing costs will encompass and cost in the real estate process. An itemized list of charges will be prepared for when you close your transaction and take the title to your new property.

Can I pay for my closing costs in installments?

No, you cannot, and it is easy to understand why. Many different parties will have fulfilled their responsibilities and be awaiting payment upon closing. The title or escrow company will disburse monies to those parties, pursuant to the escrow instructions, when funds are available.

Will I be allowed to write a personal check to cover my closing costs?

Your closing funds should be in the form of a cashier's check, issued by a banking institution and made payable to the title company or escrow office in the amount requested. A personal check can actually delay the closing or may be unacceptable to the title or escrow company. An out-of-state check could also cause a delay in your closing due to possible delays in clearing the funds.

Is it a law to purchase title insurance when I buy or refinance a home?

No. However, virtually all lenders require title insurance for the face amount of their mortgage, be it a purchase or refinance. Prudent owners also value the protection afforded by the one time payment of the title insurance premium.

How much can I expect to pay in title insurance?

This point is often misunderstood. Although the title company or escrow office usually serves as a meeting ground for closing the sale, only a small percentage of total closing fees are actually for title insurance protection.

Your title insurance premium may actually amount to less than one percent of the purchase price of your home, and less than ten percent of your total closing costs. The title policy is good for as long as you and your heirs own the property after the payment of only one premium.

Who will pay for the title insurance charges, the buyer or seller?

Surprisingly, "who pays" is not uniform. In some counties the buyer will pay while in others the seller will pay. In some states, the home seller will pay for the owner's title policy and the homebuyer will pay for the lender's policy. But in every case, the question of who pays closing costs is a matter of agreement between the buyer and seller. Usually this agreement is based on the customary practice and precedent in your specific county.

Why are separate owner's and lender's title insurance policies issued?

Both you and your lender will want the security offered by title insurance. Your home is an important and valuable purchase, and you will want to be certain that the home is yours and all yours. Title insurance companies insure your rights and interests in order to protect you against claims.

Your lender likes to insure the enforceability of their lien on your property and surety of its marketability.

What is meant by "marketability"?

Local lenders "originate" a loan in one location, and, often, sell it to an out-of-state investor. An investor, who may never see the property, needs to know that they have a valid and enforceable lien. Title insurance is the way of making certain. Without a current title policy, the loan is essentially unmarketable.

What does my “title dollar” actually pay for?

Title insurers, unlike property or casualty insurance companies, operate under the theory of risk elimination. Risk elimination can only be accomplished after an intensive period of risk identification that title companies specialize in finding out.

Title companies spend a high percentage of their operating revenue each year collecting, storing, maintaining, copying, and analyzing official records for information that affects titles and real property. The issuance of a title insurance policy is highly labor-intensive and is based upon the maintenance of a title "plant" or a library of title records, in many cases dating back well over a hundred years. Each day, recorded documents affecting real property are posted to these plants so that when a title search on a particular parcel is requested, the information is already organized for rapid and accurate retrieval.

Trained title experts are able, with the aid of their extensive title plants, to identify the rights others may have in your property, such as recorded liens, legal actions, disputed interests, rights of way or other encumbrances on the title. Before closing your transaction, you can seek to "clear" these encumbrances since you do not wish to assume them.

The goal of a title company is to conduct such a thorough search and evaluation of public records that no claims will ever arise on your property. Of course this is an impossibility, because we live in an imperfect world, where human error and changing legal interpretations make 100 % risk elimination impossible. When claims do arise, title insurance companies have professional claims personnel to make sure that your property rights are protected pursuant to the terms of your policy.

To conclude, when you pay for your title insurance policy, you are paying for a team of professionals who have worked together to deliver you a title insurance policy that represents protection for your ownership of real property.

Who can I look to for straight answers on title and closing costs?

Title Guarantee, Inc. & Titleland Agency Inc. has personnel that are available to review and explain your title policy and your closing statement.

Should you still have further questions or need legal or tax advice, your title or escrow officer can further help by referring you to the proper source for your answer. Just remember, the title or escrow officer is not a legal counsel and cannot give you legal advice.