Frequently Asked Questions

What is Title Insurance?

Title insurance is a contract which indemnifies against loss arising through defect in the title to real property. If the title is insurable, the title company will guarantee against loss due to any defects in title not specifically set forth in the policy, and pay all expenses in defense of any lawsuit which attacks the title as insured within the terms of the policy.

In real estate, "title" means a right to ownership, or a document stating a right to ownership. It is an assurance that if any undisclosed claim covered by your policy arises out of the past to threaten your ownership of real estate, it will be disposed of, or you will be reimbursed, exactly as your title policy provides. If you have clear title to a house or property, it means that you own it free and clear. The document stating your right to a property is also called a title policy.

What types of Policies are there?

Owner's Policy - To protect against the many possibilities of loss due to title defects, a buyer of real property should purchase an owner’s policy. This one-time premium protects your property from actual loss resulting from any risk covered by your policy, up to the amount of the policy.Your Fee or Owner Policy may also provide for legal defense costs should a claim arise, unless specifically excluded from your policy. An Owner's Policy may also be issued on a property where no lender is involved as protection for the new owner of the property against possible claims.

Lender's Policy - Nearly all residential mortgages originated today are sold to investors, and the mortgage will likely require a lender’s policy to protect only the lender. Typically, the Lender and the Owner Policies are issued at the same time to reduce your title policy costs.

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 purchase, and you will want to be certain your home is yours, without worries of future claims against it. Title insurance companies insure your rights and interests in order to protect you against claims. Your lender is looking to insure the enforceability of their lien on your property and marketability. What is meant by "marketability"?  Lenders will originate and typically “sell” your loan into the secondary market. The final investor needs to know that they have a valid and enforceable lien. Title insurance is the way of making certain.

If a loan policy is issued, why do I need an Owner's Policy?

A Loan Policy offers no protection to the land owner. A claim may arise that does not jeopardize the lender's interest, but may, in fact, cause a great loss to the owner.

How long am I protected?

Forever; you and your heirs are protected for as long as you or your heirs own the property.

The Lender Policy is valid through the life of the loan. A Lender's Policy may be passed to another lender/mortgagee through an assignment of the loan, however, is not assignable should you refinance the property. A new Lender Policy would be issued at that time. An Owner’s Policy is non-transferable.

Hidden Risks

Covered by Title Insurance
While an extensive search is done to insure there are no defects or “clouds” in title errors or other hazards may not be evident during the search.  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.  The issuance of a title insurance policy is highly labor-intensive.  Trained title experts are able 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 your title. The goal of title companies is to conduct such a thorough search and evaluation of public records that no claims will ever arise. Of course, there is always a chance of human error and changing legal interpretations with 100 percent risk elimination impossible. When claims arise, title insurance companies have professional claims personnel to make sure that your property rights are protected pursuant to the terms of your policy

What are some examples of risks that my owner’s coverage will insure against?

Long lost relatives or past owners could show up, sometimes from long ago, with a claim to the property that supersedes yours.

Sometimes people fraudulently sell houses that don't belong to them. For example, the husband of a divorcing couple could forge the signature of his wife, and take off with the proceeds of the sale. In a court of law, the rights of the wife could be upheld and the property could go to her, no matter how much money unsuspecting purchaser had placed in the house.

To get loans, people often use property as collateral (security against nonpayment). If someone defaults (doesn't pay back) their loan, the lender has a legal right to sell off the property to get their money back - even if the house has since so1d to a new owner. This is because the lien (claim to a property as payment on a debt) is on the house. Unless the debt is paid off, the lien stays with the house even when it changes ownership.

An easement is a right to use the land of another for a special purpose. For example, the city may have plans to build a sewer line sometime in the future. If the sewer lines run through the back of your yard, and if the city has an easement on the underground portion of your property, this might cause your prize roses to be dug up, or prevent you from building a pool in your back yard.

If a homeowner fails to pay their taxes, the IRS can obtain a lien (a claim to a property in case of nonpayment of debt) on the home. If the homeowner sells their home, without settling the tax lien, the IRS can legally get the new homeowner to pay the original homeowner's back taxes. And if the new homeowner fails to comply, they can lose their new home. 

How much should I expect to pay in closing costs?

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

Is a personal check acceptable to cover my closing costs?

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

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

Surprisingly, "who pays" is not uniform from state to state. In some states the buyer will pay while in others the seller will pay. But, in every case the questions of who pays closing costs is a matter of agreement between the buyer and seller. Usually this agreement is based on the customary practice in your state. 

Are there renewal premiums?

The original premium is you’re only cost as long as you or your heirs own the property. There are no annual payments to keep your Owner’s Title Insurance Policy in force.

A current owner may upgrade the amount of a title policy on a property should it increase significantly in value due to improvements (such as building on a vacant lot or an addition to an existing structure.)

What is the Title Search?

Trained personnel investigate public records to determine the "chain of title," which is the history of the ownership and claims upon a piece of land. By law, county records have to be kept on all property transfers, wills, liens, tax matters, etc., and these are the types of records searched in order to determine a "chain of title." The end product of a search is knowledge of potential and actual encumbrances upon a title. Obviously, liens on a property need to be paid off or knowingly assumed by the new owner-before transfer of title can occur. A Title Company will make sure that this happens. Easements and other factors need to be known by a potential owner. They can either accept them, or look elsewhere if a sewer easement, for example, will prevent them from building his dream pool.

Last, but not least, it has to be determined whether the seller of a property actually has the right to sell that property, so the ACTUAL owners or co-owners don't turn up in the future to repossess what is legally theirs.

Conveniently located in most Koenig & Strey Real Living sales offices, HomeServices Lending of Illinois offers a vast menu of mortgage loans at competitive interest rates.