Escrow & Title Insurance Explained
ESCROW
In simple layman’s terms, ESCROW is the party in a real estate transaction that collects the title from the buyer, the payment from the seller, along with the mortgage documents from the lender, and once all are received and signatures are in place, disburses them accordingly … the title is recorded and granted to the new owner (subject to the terms of his new mortgage), the payment is issued to pay off the seller’s prior mortgage with the surplus going directly to the seller, and the signed mortgage documents are recorded and provided to the lender to collateralize the loan.
The HUD-1 Settlement Statement is a standard form in use in the US used to itemize services and fees charged to the borrower by the lender or broker when applying for a loan for the purpose of purchasing or refinancing real estate. it summarizes the purchase and sale transaction. Since 2010, the HUD-1 settlement statement also contains what is referred to as a Good Faith Estimate or GFE. This additional set of figures specifies estimated settlement figures provided by the lender upon application of the loan. Borrowers may compare their GFE to the HUD-1 Settlement Statement and ask their lender or broker about any changes.
Escrow companies and agents have a tremendous fiduciary responsibility and must act as completely unbiased and independent of the parties – they earn a fee for their management of the closing of the transaction, and most Escrow companies publish those fees and adjust them based on the size and scope of the transaction.
TITLE INSURANCE
TITLE INSURANCE is a form of indemnity insurance purchased to protect against financial loss from defects in title defects to real property. Title insurance is principally a product developed and sold as a result of the deficiency of the US land records laws as opposed to such laws in other countries. It is meant to protect an owner’s or a lender’s financial interest in real property against loss due to title defects, liens or other matters – it will potentially defend against a lawsuit attacking the title as it is insured, or reimburse the insured for the actual monetary loss incurred, up to the dollar amount of insurance provided by the indemnity policy.
Typically, title insurance is bought to insure real property interests such as fee simple ownership or a mortgage, however, it may also be purchased to insure any interest in real property, including easements, leases, or life estates.
Just as lenders require their borrowers to carry fire insurance and other types of insurance coverage to protect their investment, virtually all institutional lenders also require title insurance to protect their interest in the collateral of loans secured by real estate. Wise buyers purchasing properties for cash (without a lender) should elect to purchase title insurance as well.
More than simply insuring your possessions, you can insure your ownership of your new dwelling place. Should there be problem or a dispute of ownership, title insurance is your guarantee to a successful mortgage transaction. You as the buyer will have the opportunity to purchase a title insurance policy and it is important that you understand the process and product.
Much different from home owner’s insurance, Title Insurance is a contract in which the title insurance company, in exchange for a one-time premium at close of escrow, protects against future losses resulting from defects in the title to real property that exist at the time of purchase but are unknown or undisclosed.
Should there be a problem with determination of ownership, title insurance protects you against any losses that may already be present because of the situation.
There are two types of title insurance policies – the owner’s policy and the lender’s policy. The owner will typically purchase the Standard Coverage Form in the amount of the purchase price of the property. It covers the buyer’s interest in the property for as long as the buyer or his or her heirs have an interest in the property.
The lender will typically purchase the Extended Coverage Form in an amount equal to the mortgage loan. It covers the lender’s interest in the property for the life of the loan. Owners may elect to purchase a Homeowner’s Policy of Title Insurance instead of the Standard Coverage Form.
Should your title have claims against it, the title insurance policy protects you from any loss due to those claims. It pays your lega costs in the title insurance company is required to defend your title against covered claims and pays successful claims against your title.
Claims typically covered under an owner’s title insurance policy include:
- Someone other than the insured who owns an interest in the property.
- Forgery, fraud, undue influence, duress, incompetency, incapacity or impersonation.
- Defective recording of a document.
- Restrictive covenants.
- Undisclosed liens due to a deed of trust, unpaid taxes, special assessments or homeowners association charges.
- Inability to market the title.
- Lack of access to and from the land.
Ask your title insurance agent to explain what is and is not covered under your title insurance policy.
Payment of Premiums
Title insurance premium is paid once at the time of closing usually through the title agency. It is based on the amount of insurance you purchase, and insurers are required to file and publish their schedule of rates including any discounts or other modifications. Modifications can include discounts for short-term policies or refinances, special rates for large commercial projects and charges for optional endorsements.
In Nevada, the seller usually pays the premium for the owner’s policy and the buyer usually pays the premium for the lender’s policy. This may, however, be negotiated between the buyer and seller.
Purchasing Title Insurance
Although your real estate or mortgage broker will often recommend a particular title agency, Nevada law prohibits them from requiring that consumers use a particular agent or insurer. You may purchase title insurance from any title insurer authorized to do business in Nevada. You may verify that an insurer is authorized in Nevada at www.nvinsurancealert.com or by calling toll-free (888) 467-4195.
Title insurers may offer their policies directly to consumers, through affiliated agents or through independent agents. Different title agents (also known as title companies) may offer different services, and title insurance rates and escrow fees may vary between companies.
Some factors to consider when choosing a title agent or title insurer are the cost of the title insurance and escrow fees, speed and accuracy of closing services, quality and timeliness of claims resolution and frequency and resolution of consumer complaints filed with the Division of Insurance.
