When I talk to you about listing your house for sale, I am going to ask for your original Owner's Title Policy. I have had so many Title Policy issues this month that I thought it was time to go over WHY you need to hang on to this important document.
When you are buying a home, there are SO many things to do: so much paperwork to get to the lender, home inspection, movers, home owner’s insurance, changing schools, utilities…. One of the things you usually DON’T have to worry about is Title Insurance. Yes, you DO have to pay for it (often the cost is split with the seller) but your realtor or the closing attorney usually takes care of ordering this important insurance policy.
What IS Title Insurance anyway? A Title Insurance Policy guarantees that you own the property you are buying FREE and CLEAR. It ensures the person who is selling the house to you actually owns the property, that there are no other liens on the property – such as to the IRS, a lending institution or a contractor who did work on the house. There are many different insurance companies - just like there are with homeowners or car insurance (the policy to the right was issued by First American).
In order to issue the Title Insurance Policy, the title company traces the ownership records back hundreds of years. Every time a person in the past bought the house using a mortgage company to get a loan, that mortgage company put a lien against the property. Every time the owner refinanced the property, that new lender put a lien against the property. When these loans are paid off (either from the proceeds of the sale, or the new loan in the refinance), there should be a “release of lien” filed at the courthouse in the same place the liens were filed originally. If this is not done there is a “cloud” on the title.
When you go to closing, the closing attorney collects what is owed on the property and sends it to the old lender. The lender should immediately file a release. Then you receive the original Owner’s Policy of Title Insurance. This typically comes in the mail in about a month to 6 weeks after you close on the house. PUT THIS IS A SAFE PLACE WHERE YOU CAN FIND IT LATER.
When you get ready to sell your house, your relator will ask you for this document. If you are selling your house in less than 10 years, you can get a credit on the new policy. It is just a few dollars, but it is something, and we ALL like to save money. More importantly, if the new title search shows that some type of lien is filed against your property from the time before you bought it, you have an Insurance Policy that will take care of the issue.
In the last month, I have clients who refinanced their house a couple of years ago and the old lender sent THEM the release of lien instead of filing it at the courthouse themselves. My clients didn’t know what they were supposed to do with the release – thank goodness they remembered getting “something” from the lender. They were able to bring the release to the closing attorney and they were then able to provide a clean Title Policy to the buyer.
I have had another client who had 2 liens from 1998 that showed up on the title search. Those mortgage companies were no longer in business – it is hard to get a release from someone who is no longer in business!! Their Owner’s Policy of Title Insurance is what they need to prove they had clear title to the property. If something shows up that should have been cleared, the insurance company is now responsible – not them.
So, when your title policy comes in the mail put it in a safe place. It is typically an 8 ½ X 11 document that says Policy of Title Insurance on the jacket on the outside and inside there will be a schedule A and a schedule B. If you refinance, and the lender asks for your title policy, give the new lender a copy and keep the original in a safe place.
If you DON’T receive the title policy within 2 months, call your closing attorney and have them track it down for you. When you get ready to sell, having this document can save you time and money.