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What is the point of Title insurance?
- -a policy insuring the owner or mortgagee against loss by reason of defects in the title to a parcel of real estate.
- -to defend the buyer's title and pay the costs of defense is one.
- -title company pays owner compensation if problems occur with title of property; liens, seller is not owner, etc.
It is highly advisable for a buyer to obtain title insurance and most lenders require it.
When is Title Insurance paid?
What happens if a title company goes bankrupt?
-the state's reinsurance fund will pay the buyer's claim.
Paragraph 6.A. specifies what?
- -who pays (normally seller)
- -name of title insurance company
- -title company exceptions
Insurance of title and handling the closing are both done by
the title company; mostly; can be different in other states
It doesn't matter who pays for the title insurance, but most of the time it may be the seller, why?
- -can affect the buyer's qualifying for a loan, or cause problems under RESPA laws
- -called sellers concession to the buyer
Mortgagee's title insurance is a buyer's cost in the TREC form and not listed in paragraph 6.
true; listed in para 12
Real Estate Settlement Practices Act.
RESPA Rule if buyer pays for title insurance
- -seller can't require a particular title company; if they do then they can be sued up to 3x the title policy cost
- -unless buyer agrees to go with seller's pick
Mortgagee and Mortgagor
- -lender in a mortgage loan transaction
- -a borrower who conveys property as security for a loan
What is a mortgagee's title insurance policy?
- -assures a lender that it has a valid first lien (or perhaps a second lien) against the property.
- -pays off lender
- -most lenders require
Title companies are regulated by
What are some reasons why broker would prefer certain title companies?
- -fast closing
- -handle complex problems when closing
A broker can charge a title company a fee for using them.
- -a title commitment shows the terms and conditions on which a title company proposes to insure title for a buyer
- -title policy usually arrives after closing
Title insurance and commitment are normally applied as soon as..
-both sides sign the contract and an earnest money check is received.
What is title commitment?
- -a statement of the terms and conditions on which a title insurance underwriter is willing to issue a title insurance policy.
- -after title company receives check and contract, they research the history of the title
- -the commitment discloses any existing problems with title, prior to the closing, so that they can be cleared up, if possible; if not resolved closing cannot happen.
The title insurance company is required to generate a title insurance commitment in only ___ days, from the date it receives the contract, plus a ___ day automatic extension if needed. What happens if the company does not get it done in that time?
- -20, 15
- -buyer can pull out of contract; time can be extended under mutual agreement of buyer and seller
Within the 20 day time period to receive the commitment, the buyer should also be furnished with copies of deed restrictions and survey. With these three copies in hand, a buyer can decide
-what to object to or consult an attorney
Title insurance company procedures revolve around the following basic concept: Don't sell the buyer title insurance until you make sure the buyer doesn't need it first! This means what?
-by law, the title insurance company must carefully check title to be sure that it's good before it insures that it's good; they make sure title is good and clear and put money up that it is.
-Once the title company receives an order for title insurance, the title _____ or ______ will go to work, researching the title.
- mill or plant
- -goes to head of mill who gives it to a copy shooter who creates a quick abstract of the property (collection of all docs of the title), then gives it to an expert to look over to find problems
Good or bad, the commitment will be delivered to the personal who ordered the title insurance or to an attorney if one is specified.
The Title Commitment is divided into four basic schedules:
- Schedule A: the basic information of a title policy; effective date, policy amount, type of policy, name of the proposed insured (buyers), the estate or interest in the land to be covered, the person to whom the title is currently vested, legal description of property to ve insured, GF number
- Schedule B: showing standard exceptions to the title coverage from items like loan liens created to buy the property with, or on-going future property taxes.
- Schedule C: shows trouble; matters that must be cleared in order for the company to issue commitment; found on commitment but not policy
- Schedule D: shows who owns the title company; companies settlement charges, the parties to whom the premium is paid to and the ownership and agents of the title company.
What is a GF or File No.?
- Guaranty File Number; the number the title insurance company and closer uses to locate the file folder and paperwork for the transaction.
- -need info from the insurance company give them the GF number
The effective date of the commitment is
the date to which the title company has checked title
What are some promulgated exclusions that will keep an title insurance company from covering a property?
- -Ordinances and government regulations, including zoning; owner wants to use property that would violate a regulation.
- -Environmental Problems; will not cover a loss do to environmental difficulties; discovering asbestos
- -Eminent Domain; loss of title due to eminent domain is not covered.
- -Problems that are self-inflicted by the buyer; buyer takes on a lien, encumbrance, or adverse claim
- -Problems that are concealed from the Title Company by the Buyer; buyer fails to disclose a problem in writing and is NOT recorded in the real property records
- -Problems that aren't problems; no loss or damage
- -Problems that arise AFTER the date of the policy; protects against past events, not possible future encumbrances
- -Vendor's lien Problems; buyer failed to pay value of property
- -It won't sell; property can't be sold or mortgaged later b/c no one wants it
- -Bankruptcy or state insolvency law problems; if a seller sells a property below market value, a buyer can lose it once the seller declares bankruptcy.
Schedule B of the title insurance company contract permits the title insurance policy to be subjected to both of the following:
- -promulgated exclusions
- -eight listed exceptions;
What are the eight exceptions from title insurance coverage?
- -restrictive covenants common to the platted subdivision in which the property is located; deed restrictions; ex: Hundred Acres restrictions
- -The standard printed exception for standby fees, taxes, and assessments; if buyer doesn't pay taxes and loses the title
- -Liens created as part of the financing described in Paragraph 4; ex: default mortgage payment; foreclosure
- -Utility easements created by the dedication deed or plat of the subdivision in which the Property is located; most subdivisions have water, electric, and sewage easements; title insurer won't insure they're not there.
- -Reservations or exceptions otherwise permitted by this contract or as may be approved by Buyer in writing; if buyer agrees to exempt something
- -The standard printed exception as to marital rights; buyer's spouse problems not covered; seller's spouse problems are covered.
- -The standard printed exception as to waters, tidelands, beaches, streams, and related matters; loss due to water changes
- -The standard printed exception as to discrepancies, conflicts, shortages in area or boundary lines, encroachments, or protrusions, or overlapping improvements. Buyer, at Buyer's expense, may have the exception amended to read, "shortage in area"; survey exception; lender may want to re-new an old survey in case there where mistakes to the old one; buyer usually pays
In Schedule C of the Title insurance commitment, what are the three main difficult liens that regularly pop up to stop or withhold a deal?
- -IRS liens
- -Judgement liens, called A.J.s for abstract of Judgement
- -Mechanic's liens
- -these can try to be handled to keep the deal closing by being paid off or making a deal with the lien holder.
What are some things that pop up on the title insurance commitment schedule c, that are not deal stoppers, but things the buyer might want to clear up before closing the deal?
- -superior title (ex:vendor's lien (seller lien))
- -visible and apparent easements
- -land lying within a public road
- -mineral reservations; ex: seller keep mineral rights but sells oil and gas rights
- -outstanding mineral and royalty interests
- -rights of parties in possession; if seller has leased the home, tenants have rights to live there
- -in Texas this rock layer has natural gas that recent developments in horizontal drilling and advanced "fracking" allow to be exploited
- -making some land owners rich
- -biggest Barnett Shale, north of fort worth and under fort worth
What are four main survey problems that cause a new survey?
- -The front of the house extends over the set-back line from the street, which violates the "right of way" or "street easement"; houses must be set back from the street
- -The pool has been built underneath a power line in an outrageous violation of the power line easement.
- -The overhang from the garage violates the aerial easement rights of the power line company by a few inches
- -A fence is built on the wrong side of the property line.
- ***Once all the problems have been cured, the title insurance policy can be issued without the survey exception for a 15% surcharge over the normal title insurance policy premium for the sale.
Paragraph 6C, The Survey deals with what?
- -specifies a time to which a survey needs to be delivered and paid for by either seller or buyer
- -lender and Title Company don't want to order the survey until loan has been approved; no one wants to deal or pay for the survey but if it is required to be done, it must be so preferable before closing to have a good look over.
Paragraph 6C has four choices for arranging and paying for a survey, what are they?
- 1. seller's existing survey plus an affidavit of no changes goes to the title company; evidence of an existing survey and form T-47 verifying that no changes have been made to prove the old survey incorrect.
- 2. Buyer buys new survey within __ days of the effective date
- 3. Seller buys new survey within __ days of the effective date.
- 4. No Survey; there is not an option listed on the form; poor choice; seller may not have one, buyer doesn't want to pay, deal is cash, etc.
What is the name of the form a seller fills out to release the old survey and guarantee that nothing has changed to affect the old survey?
T-47 Residential Real Property Affidavit
If the parties are selecting a surveyor to use, who should be the first candidate surveyor?
- -the surveyor who surveyed the property the last time--could be cheaper to use the same one.
- -if they are not available; pick a surveyor who has time available and knows their stuff.
A surveyor must be a
Registered Professional Land Surveyor
What is a survey exemption? How can it be covered under title insurance?
- -located under the eight exceptions from the title insurance coverage.
- -boundary disputes and related problems (encroachments) which are normally excluded from coverage by title insurance unless this exception is deleted by providing an acceptable survey and eliminating any current problems.
- -lender may want a new survey; buyer pays for it most likely
- -title insurance companies most likely only accept Class 1A surveys
- -Class 1B are cheaper and still good, but most title companies will not accept.; use paragraph 11
If the title insurance company decides to accept coverage of a survey, the insurance will cover ______, not the area of the property.
A surveyor figures out the boundaries and area of the property, improvements, encroachments, discrepancies, if the property is too low to the Floodplain (for flood insurance), etc.
The Category 1A survey must be more accurate and show...
- -easements of record or apparent easements that are visible without meticulous searching are to be physically located during the survey
- -apparent conflicts, protrusions, evidence of prescriptive or limitation rights upon the sign shall be physically located
- -visible improvements within, along, beside, or 2 ft outside the property lines including buildings, wells, roadways, driveways, ponds, fences, etc.
- -Information gathered in the field survey relevant to the location of the site or the improvements thereon shall be shown or given in any map, plat, drawing or report furnished the client.
The buyer has a negiotiated a time under paragraph 6.D. to object to a problem with the survey, but
-surveys usually are not delivered until close to closing.
- Federal National Mortgage Association
- Fannie Mae
It is best to exercise objections when the commitment, copies of the deed restrictions, and the survey are all available. If not cured in ___ days after Seller receives the objections, the contract terminates Unless...
- -buyer waives the right to object.
- -objects need to not cost the seller anything, or very little; unless buyer pays
The buyer may NOT object to matters which are part of the standard exclusions or standard exceptions to the title policy, unless specified in Paragraph 6.A.(8).
Brokers should NEVER give the buyer legal advice concerning title problems.
- -objectives: formal statements in opposition to the title problems shown in a title commitment.
- -you can put certain activities you wish to do; if there are restrictions that pervent the buyer from doing the listed activities the buyer can object; ex: exotic pet, goat, pool can be installed
- -buyer can object when the title insurance company brings up problems
Paragraph 6.E. Notices to Buyer and Seller, has 9 notices that each party must receive, what are they?
1. Abstract or Title Policy: basically a broker/agent must advise the buyer to have the title covering the property, to be examined by an attorney: abstract means nothing without an attorney overview of it; to show proof that the title is good. Also the attorney looks over the title company commitment and explains the commitments and any problems the commitments may accur for the buyer; a buyer only has 7 days after commitment arrives to object to title problems, so it needs to be done quickly.
- 2. Property Owner's Association Membership Notice: information of the homeowner's association; HOA fees; Hundred Acres; called A Property Owner's Association Addendum. There is a check box in the contract that tells the buyer if the property is subject to mandatory membership, if so two issues arise: Requirments (ask about the ten Common Subdivision Problems: business in the house, too many vehicles, large vehicles (RV), commerical vehicles, boats, satellite dishs and antennas, plants, decorations and statues, painting, and keeping up the property's apperance) and Assessments (HOA fees).
- ---One of the member's from the homeowner's association must fill in and sign a homeowner's association certificate
- ---A form doesn't have to be used; use if buyer wants lots of information
- ---If a homeowner's association can levy assessments and information is requested they must by law give information; buyer can sue if not given the info in reasonable time.
3. Statutory Tax Districts (The MUD District Notice): if a property is located in city limits, the city rather than MUD will provide utilities and the MUD notice is unnecessary.
4. Tide Waters: Beach Addendum (construction on the beach) and Coastal Area Notice (informs the buyer about the problems with the building in any tidally influenced submerged area, special permit: construct near or behind the the beach)
5. Notice Concerning Potential Annexation
6. Property Located in a Certificated Service Area of a Utility Service Provider: Seller of certain rural properties to give a special notice to buyers of unimproved properties, outside city limits, that it uses a Special Utility District (SUD), special kind of MUD; collects taxes and fees; under certain conditions (foreclosures, gov, etc.) a notice is not required.
7. Public Improvement Districts (PID's); Texas law allows; can tax areas that need public improvements; rare
8. Texas Property Code 5.205; requires Seller to notify Buyer of any private transfer fees--HOA fees
9. Propane Gas System Service Area: if you are in one
adjacent areas next to Texas cities may be "annexed" and put within a city's boundaries. The right to do this extends out various distances but it is five miles for major cities. Once annexed, the city must provide essential services; usually residents dislike it. They will have to pay city taxes too.