This week, we're delving into the importance of title insurance. Many might not realize that when you buy real estate, the title could have hidden defects, leading to unexpected losses and legal issues. Title insurance is a contractual safeguard designed to protect you against such unforeseen problems, ensuring your investment remains secure. To gain a deeper understanding of title insurance and its benefits, we're speaking with DJ Bibb, Vice President of Fidelity National Title in Newport Beach. DJ will provide expert insights on how title insurance works, what it covers, and why it's a crucial component of any real estate transaction.
DJ, for those who are completely new to the concept, how would you explain what title insurance is in simple terms?
Title insurance is best described as both a product and a service. In simple terms it is like the other half of the escrow process, as title & escrow have to work hand in hand to perform a closing/settlement. A title company does a full background check on the chain of title history, identifying the vested owners and well as any lien holders that need to be paid off as part of settlement. This information is delivered to the escrow officer, so that they can in turn do their job of preparing the transfer deeds and coordinating any necessary payoffs. See without the title report, they don’t know who exactly to transfer the property from, and who needs to be paid off. Once escrow has prepared everything the title company makes the actual payoffs, and records the transfer deeds. That is the service side of it. The product is the insurance policy which basically guarantees that the transfer was done correctly, the payoffs were made, and the new owner is protected from anything having to do with any previous owner.
Why is title insurance so crucial in the process of buying real estate? Can you share some common scenarios where title insurance has been particularly beneficial?
Title insurance is not required by law, but not having could create some issues for a few crucial reasons:
- If you record something today, it takes any county recorders office a certain number of days to process the recording and release the information to the title companies and the public, so there is always a gap in the information timeline. Here in Orange County CA, that gap is 10-14 days. As a title company we know that, and take that risk as the cost of doing business.
- When we run a title report, we don’t start at the beginning of time, we start when the property was last insured, and we updated everything from there. So, we are trusting that the previous title company did a good an accurate job, which is never 100% of the time, as errors do occur. This too is the cost of doing business.
- If someone were not to get title insurance, it would cause a very complicated file when they eventually go to sell the property. That title company on the back end, would essentially have to go back through the previous sale, and verify everything, contact the old sellers, etc. Which is not always possible.. So they run the risk of the property becoming uninsurable, which can hurt its marketability.
If any of these things could present a loss of some kind. For an individual property owner, these could be financially catastrophic, but for a massive financial institution, they happen every day, and are just he costs of doing business.
Are there any common misconceptions about what title insurance covers? What are some typical exclusions that homeowners should be aware of?
The most common misconceptions about title, is that it is just an insurance policy, and that if the title company does their research correctly, there are never any claims, and it is just a worthless fee that buyers and sellers have to pay. Truth is, as I stated above, is that it is hugely a service. Someone has to make the payoffs and record the transfer deeds, no one else is going to offer any kind of protection or guarantee that it was all done correctly. Not to mention the 3 crucial reasons I mentioned.
Can you explain the process of obtaining title insurance? What steps are involved, and who typically pays for the policy?
Title is typically obtained through the transaction process, and is ordered by the escrow officer. It is customary for the seller to pay of the owenrs policy, which is based on the sale price of the property, as part of delivering clear title to the buyer. Additionally, it is customary for the loan policy to be paid for by the borrower to protect their lender. That policy is based off the loan amount.
In the event of a claim, what steps does Fidelity Title Insurance take to resolve the issue?
As I mentioned throughout the country, claims happen every day. Fidelity will first do what they can to correct any issues through public records. If there is nothing to be fixed, and it is just a financial issue, settlements are reached and claims are paid.
What advice would you give to first-time homebuyers regarding title insurance? Are there any specific tips you recommend for ensuring they are adequately protected?
Since an insurance policy is only as strong as the company that back it, I would strongly recommend that anyone getting a policy only use one of largest companies such as a Fidelity Company (Fidelity, Chicago, Lawyers, Ticor, Alamo, etc.) or First American
Looking ahead, what do you see as the future of title insurance? Are there any emerging challenges or opportunities that you foresee for the industry?
The only emerging challenges I see is that as technology progresses, so does the opportunity for fraudsters to have more creative and intricate scams. This is always a challenge we face.
In conclusion, we would like to express our sincere gratitude to DJ Bibb, Vice President of Fidelity National Title, for his invaluable contribution to this discussion on title insurance. His expertise and insights have provided a comprehensive understanding of the critical role title insurance plays in protecting real estate investments.
