For most investors starting out the real estate “closing”
can seem to be a mystery. The closing is nothing more than
the settling up of the deal.

One of the crucial pieces of the real estate puzzle you want
is title insurance. Here is a brief article from Bill on
“Title Insurance and How to Save up to 90%”

If you have ever bought or sold real estate, you have
probably paid for title insurance. What exactly is title
insurance? Why do we need it? How can I save money on
title insurance? These are common questions asked by real
estate investors.

Whenever title passes, the seller usually gives a deed
containing certain guarantees or “warranties” (hence the
name “Warranty Deed”). The seller warrants that title is
good, that is, no one will come challenge the integrity of
the title.

For example, if a deed that was passed before him was
forged, all subsequent transfers are void. Other problems
may be more subtle, such as a deed with an incorrect legal
description or misspelled name. Any irregularities in the
“chain of title” will place a “cloud” on the integrity of
the title.

The Title Search

When you are ready to sell a property, a title search is
performed by a title company or attorney. The title
searcher follows the chain of title back about 50 years,
tracing the ownership through deeds recorded in pubic
records. The searcher also checks to make certain that
previously recorded mortgages and other liens have been
released.

Based on documents found in public records, the title
company or attorney will prepare a “title insurance
commitment.” A commitment is a statement that based upon
certain documents found by a search of public records, the
company will issue a title insurance policy for a certain
fee.

The Title Insurance Policy

The title insurance policy, unlike most insurance policies,
covers past events. For example, the daughter of a previous
owner claims that her father conveyed a deed while not
mentally competent, the current ownership may be in
jeopardy. The title insurance company will defend the claim
and pay for any damages (usually the value of the property).

The policy does not cover claims based on events that occur
after the policy is issued. Furthermore, the policy usually
contains numerous exceptions, such as claims based on
information undisclosed to the title company. Thus, if you
are aware of any potential problems that might lead to a
claim, your failure to disclose this information to the
title company will lead to a denial of a claim based on
those events.

Ask for a “Re-issue” Rate

A title insurance coverage starts from ancient history and
ends from the date you transferred title. Since most
transfers are insured by a title company, the longer you own
the property, the more the policy costs. Consider this: if
you buy a property and the transaction is covered by title
insurance, then you sell it six months later, what are the
chances that something went wrong in the last six months?

The answer is that the chances are slim to none, so the risk
of a claim against the title are slim to none. For this
reason, title companies offer a “re-issue” rate. The re-
issue rate is a discounted price (usually about 40%) on the
title insurance policy if another policy from a title
company was issued on the same property within the last few
years.

The rate is lower because any claims that arise from events
before the previous owner are covered by the previous
policy. Thus the new policy really deals with the risk of
claims from events that occurred while you owned it.

Try a “Hold-Open” Policy

If you are buying a property with the intent of re-selling
it within a year, ask the title insurance company for a
“hold-open” policy. For a small fee (usually an additional
10% on the policy), the title company will hold a title
commitment open for a year or more.

Rather than issue a policy based on the first transfer (from
the seller to you), they will issue a policy on the second
transfer (from you to the next buyer). Since the seller
usually pays for title insurance, you can pay the additional
10% when you buy, saving 90% on title insurance when you sell.

Learn how to sell your houses in 30 days or less guaranteed.

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Tags: hold open policy, real estate closing, reissue rate, title insurance

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This entry was posted on Friday, March 14th, 2008 at 8:13 pm and is filed under Investing in Homes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.