General Information

What Is Title Insurance?
There are two types of Title Insurance:

Lenders Title Insurance (also called a Loan Policy)

• Most lenders require one
• Usually based on the dollar amount of your loan
• Protects the lender's interest in the property should a problem with the title arise
• Policy amount decreases each year and eventually disappears as the loan is paid off

Owner's Title Insurance

• Usually issued in the amount of the real estate purchase
• Purchased for a one-time fee at closing and lasts as long as you or your heirs have an interest in the property
• Only Owners title insurance fully protects the buyer should a problem happen with the title that was not uncovered during the title search.
• Pays for any legal fees involved in defending a claim on your title Payment and fees
• Prices and the way title insurance is issued varies state to state, therefore you must contact a title company in your area to understand how it is to be handled.

Protection by the title company
For a title company to issue title insurance, they must first search all public records for anything dealing with or affecting that title. Some examples of items that can cause a problem would be: deeds, wills and trust that contain improper information; outstanding judgments or tax liens against the property; and finally, easements.
Unfortunately, hidden problems can emerge after closing. Problems such as mistakes in the public record or forged deeds could cloud the title but luckily owner’s title insurance offers financial protection against these by negotiating with third-parties, and paying claims and legal fees in defending the title.

Common Problems

• Fraud & Forgery - examples of hidden title hazards that can remain undetected until after a closing despite the most careful precautions. An owner's title insurance policy protects financially through negotiation by the insurer with third parties, payment for defending against an attack on the title as insured, and payment of valid claims.
• Conflicting Wills - Conflicts over a will from a deceased former owner can cause trouble five, ten, or twenty years down the road for whomever the new owner of the property is. Those stated in the will, have claim over the property, but with insurance bought with the purchase, the title company will pay the claim, along with any additional amount in legal fees incurred during the defense.
• Missing Heirs - For a one time charge at closing, owner's title insurance will safeguard against problems including those even an exhaustive search will not reveal. For example, if a home was legally bought and some time down the line, a proven heir is found, the heir may be entitled to a share of the value of the home, but your title insurance company will pay the damages, not you.

First Owner? Think again
If you are buying a newly built home, there were most likely many prior owners of the unimproved land. A title search will uncover any existing liens and a survey will determine the boundaries of your land being purchased. Also, builders constantly fail to pay subcontractors and suppliers and this could result in the subcontractor or supplier placing a lien on your property.

Purchasing an owner's title insurance will protect you against these potential problems and pay for any legal fees involved in defending a claim.

The Work Behind Closing
The day of closing should be a time of celebration, whether you are purchasing your first home or your tenth. While you’re packing, scheduling the movers and ordering your utilities, can rest assured that your settlement processor is working very hard behind the scenes to make sure you closing goes smoothly. Here's a behind the scenes look at the settlement process:

Once an order is received, the race begins…

• Timing is essential to make sure all the ingredients for a successful closing are in place before your arrival.
• When the contract is received, the processor reviews it for accuracy and completeness.
• If an earnest money or deposit check is received, the processor will see that it is deposited into an escrow account, where the funds will remain until the time of closing.
• The processor will then request preliminary title work. A title search will be done, and a title commitment will be prepared.
• Once again, the processor checks the information of the title commitment for accuracy and completeness and compares it to other documents, such as the contract and loan closing instructions to make sure all information is consistent.
• While the title commitment is being prepared, the processor is ordering payoff figures from the existing lender (if the contract calls for a mortgage to be paid off).
• The processor then orders property inspections, surveys, termite reports and well and septic tests (if necessary). If any problems or discrepancies are discovered, the appropriate parties are told in order for the problem to be corrected.
• Again, the settlement processor checks all previous work for accuracy and completeness before preparing the HUD-1 Settlement Statement which shows all costs paid at closing as well as pre-paid costs, such as earnest money deposit and loan application fee. The lender will supply the settlement company with their closing figures and loan documents to be signed. This usually happens the day of or the afternoon before closing.
• Now it’s closing day, and it’s finally time to close the transaction and transfer ownership of the property from the seller to the buyer. If that buyer is you, welcome to your new home!

Useful Information

The HUD-1 lists a complete accounting of the purchase transactions. It’s the financial picture of the closing. All money flowing in and out of settlement appears on the form. “Buyers” are referred to as “Borrowers” on this form even though it may be used when there is no loan involved, such as a cash transaction. We will refer simply to “buyers” and “sellers”. The Contract or Escrow Agreement is the written agreement between Buyer and Seller which shows the purchase price of the home as well as the “who-pays-what” information relating to closing costs. The Loan Closing Instructions, provided by the Lender, show all loan-related costs.

Title evidence, in the form of a title commitment, title report or other document, reflects any existing mortgages or judgment liens that must be satisfied or paid off at time of closing.

It is the responsibility of the Settlement Agent to see that all charges on the HUD-1 are substantiated in writing and to see that all deposits and disbursements are made in accordance with the HUD-1.

Parts of the HUD-1

Page 1 of the Settlement Statement is divided into three main sections:

Section A-l: The top portion shows the parties to the transaction are: Buyers, Sellers, Lender and Settlement Company—along with the property address and closing date.

Sections J and K: The bottom portion of Page 1 is divided into two columns: Section J for Buyers and Section K for Sellers.

J-scans Sections 100-300: Section J is further broken down into the Buyer’s debits (section 100), credits (section 200) and totals (section 300).

Section 100 Buyer Debits: Section 100 shows what the Buyer owes, such as the purchase price of the home.

Line 103: Line 103 reflects the settlement charges paid by the Buyer, which are itemized on Page 2 and carried over from Line 1400

Line 120: Line 120 is the total of what the Buyer owes

Section 200 Buyer Credits: Section 200 shows what credits the Buyer has, such as the loan amount, the deposit made by the Buyer and any money owed to the Buyer by the Seller at time of closing, such as pro-rations for taxes and assessments.

Section 300: Section 300 carries the total down to the bottom of the page. Line 301 is the same as Line 120. Line 302 is the same as Line 220. Line 303 is the total “cash” due from the Buyer at closing.

Line 303: Generally, the buyer is asked to bring a cashiers check or other certified funds for this amount to closing.

Sections J and K: Section K reflects the credits, debits and totals of the seller and is broken down into Sections 400, 500, and 600

Section 400 Seller Credits: Section 400 reflects the credits due the Seller at closing, such as the sales price of the home.

Line 420: Line 420 shows the total credits due to the Seller at closing

Section 500 Sellers Credits: Section 500 reflects the charges or debits of the Seller. Examples include the settlement charges paid by the Seller (Line 502), payoffs of existing loans, pro-rations of items such as taxes and assessments to be credited to the Buyer at closing.

Line 520: Line 520 shows the total debits due from the Seller at closing.

Section 600: Section 600 carries the totals down to the bottom of the form.

Line 601 is the same as Line 420. Line 602 is the same as Line 520.

Line 603: Line 603 is the “cash” due to the Seller at closing.

Section L: Highlighted: Page 2 of the settlement statement Buyer/Seller Columns contains Section L, “Settlement Charges” with separate Buyer and Seller columns. Section L is further divided into Sections 700 through 1300, ending with Line 1400.

Line 700: Section 700 reflects the amount of commission to be paid to the real estate brokers.

Section 800: Section 800 discloses loan-related charges such as origination fees and discount points.

"POC" Example: Any fee the Lender requires to be paid "up front" (at time of loan application), such as a credit report fee, will be shown on the HUD-1 with the notation "POC" for "Paid outside Closing".

Section 900 Pre-paid: Section 900 reflects any prepaid items the Lender requires be paid in advance, such as preliminary interest or the first year's hazard insurance premium.

Section 1000 Escrows: Section 1000 reflects escrow items, such as deposits for taxes and insurance, which the Lender collects and holds for payment for future bills.

Section 1100 Title: Section 1100 reflects title charges payable to the title and/or settlement company. Such fees may include settlement or closing fees, abstract or search fee, title examination fee, and title insurance premiums, among others.

Section 1200 Recording: Section 1200 reflects county and/or state recording fees for instruments such as the deed and mortgage.

Section 1300 (Additional): Section 1300 reflects any additional settlement charges, such as surveys or pest inspection fees.

Line 1400: Line 1400 reflects the total charges for the Buyer and Seller

Line 1400 carried to Buyer 103: The total due from the Buyer carried over to page 1, Line 103

Line 1400 carried to Seller 502: The total due from the Seller is carried over to page 1, Line 502

Once Satisfied, the buyer, the seller and the Settlement agent will sign the HUD-1, certifying that the information shown is accurate, so be sure to look over the statement closely.