Frequently Asked Questions

What is Title Insurance and Why do I need it?
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.

What are Title Hazards?
Various kinds of claims can exist to "cloud" a title. Some examples are:

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 Can I Protect My Investment?
When buying a property, the best way to protect your investment is to obtain the services of a reputable Title Company to do a thorough title search, and insure you against the chance of some lien or claim being overlooked.

What services will I be paying for when I pay closing costs?
You will usually be paying for such things as real estate commissions, appraisal fees, loans fees, escrow charges, advance payments such as property taxes and homeowner's insurance, title insurance premiums, pest inspections and the like.

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.

Will I be allowed to write a personal check to cover my closing costs?
Your closing funds should be in the form of a cashier's check, issued by a New Jersey institution, made payable to the title company or escrow office in the amount requested. A personal check may delay the closing or may be unacceptable to the title or escrow company. An out of-state check could also cause a delay in your closing due to possible delays in clearing the check.

How much can I expect to pay for title insurance?
This point is often misunderstood. Although the title company or escrow office usually serves as a meeting ground for closing the sale, only a small percentage of total closing fees are actually for title insurance protection. Your title insurance premium may actually amount to less than 1 percent of the purchase price of your home, and less than 10 percent of your total closing costs. The title policy is good for as long as you own the property with the payment of only one premium.

Who will pay for title insurance charges, the buyer or the seller?
Surprisingly, "who pays" is not uniform from county to county in New Jersey. In some counties the buyer will pay while in others the seller will pay. In other counties the seller will pay for the lender's title policy and the buyer will pay for the owner's policy. 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 county.

What does my title dollar pay for?
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. Title companies spend a high percentage of their operating revenue each year collecting, storing, maintaining and analyzing official records for information that affects title to real property. The issuance of a title insurance policy is highly labor-intensive. It is based upon the maintenance of a title "plant" or library of title records, in many cases dating back over a hundred years. Each day, recorded documents affecting real property are posted to these plants so that when a title search on a particular parcel is requested, the information is already organized for rapid and accurate retrieval. Trained title experts are able, with the aid of their extensive title plants, 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. Before closing your transaction, you can seek to "clear" those encumbrances, which you do not wish to assume. 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, this is impossible we live in an imperfect world, where 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. To conclude, when you pay for a title insurance policy, you are paying for a team of professionals who have worked together to deliver you a title insurance policy that represents protection for your ownership of real property. The original premium is your only cost as long as your or your heirs own the property. There are no annual payments to keep your Owner’s Title Insurance Policy in force.

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, all yours. 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"? Well, we in New Jersey have long been importers of mortgage money. Local lenders will "originate" a loan here and, often, sell it to an out-of-state investor. This investor, who may never see the property, needs to know that they have a valid and enforceable lien. Title insurance is the way of making certain. Without a current title policy, the loan is essentially unmarketable.

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.

What about an Attorney Search?
Title insurance should always be obtained even if you hire an attorney to do an independent title search. There are several reasons for this:

There could be hidden title risks not revealed in the records; an attorney would not be responsible for this kind of hazard if it showed up later.

An attorney would not be responsible for the fraud or forgery of a seller.

Usually, an attorney is only liable if he/she is negligent in the search or examination-something that is very difficult to establish in a legal proceeding.

Recovering on a title loss may involve the cost and complexities of bringing suit against the attorney or seller.

What is a Preliminary Report?
A preliminary report contains the conditions under which the title company will issue a particular type of title insurance policy.

What role does a Preliminary Report play in the real estate process?
The preliminary report lists, in advance of purchase, title defects, liens and encumbrances which would be excluded from coverage if the requested title insurance policy were to be issued as of the date of the preliminary report. The report may then be reviewed and discussed by the parties to a real estate transaction and their agents. Thus, a preliminary report provides the opportunity to seek the removal of items referenced in the report which are objectionable to the buyer prior to purchase.

When and how is the Preliminary Report produced?
Shortly after escrow is opened, an order will be placed and the title company will begin the process involved in producing the report. This process calls for the assembly and review of certain records matters relative to both the property and the parties to the transaction. Examples of recorded matters include a deed of trust recorded against the property or a lien recorded against the buyer or seller for an unpaid court award or unpaid taxes. These recorded matters are listed numerically as "exceptions" in the preliminary report. They will remain exceptions from title insurance coverage unless eliminated or released prior to the transfer of title.

What should I look for when reading my Preliminary Report?
You will be interested, primarily, in the extent of your ownership rights. This means you will want to review the ownership interest in the property you will be buying as well as any claims, restrictions or interests of other people involving the property. The report will note in a statement of vesting the degree, quality, nature and extent of the owner's interest in the real property.

This most common form of interest is "fee simple" or "fee" which is the highest type of interest an owner can have in land. Liens, restrictions and interests of others, which are being excluded from coverage, will be listed numerically as "exceptions" in the preliminary report. These may be claims by creditors who have liens or liens for payment of taxes or assessments. There may also be recorded restrictions, which have been placed in a prior deed or contained in what are termed CC&R's-covenants, conditions and restrictions. Finally, interests of third parties are not uncommon and may include easements given by a prior owner which limit your use of the property. When you buy property you may not wish to have these claims or restrictions on your property. Instead, you may want to clear the unwanted items prior to purchase. In addition to the limitations noted above, a printed list of standard exceptions and exclusions listed items not covered by your title insurance policy may be attached as an exhibit item to your report. Unlike the numbered exclusions, which are specific to the property you are buying, these are standard exceptions and exclusions appearing in title insurance policies. The review of this section is important, as it sets forth matters which will not be covered under your title insurance policy, but which you may wish to investigate, such as governmental laws or regulations governing building and zoning.

Will the Preliminary Report disclose the complete condition of the title to a property?

No. The report does not show the condition of title, but merely reports the current ownership and matters that the title company will exclude from coverage if a title insurance policy should later be issued.

How do I go about clearing unwanted liens and encumbrances?
You will wish to carefully review the preliminary report. Should the title to the property be clouded, you and your agents will work with the seller and the seller's agents to clear the unwanted liens and encumbrances prior to taking title.

Is a Preliminary Report the same thing as title insurance?
Definitely not. A preliminary report is an offer to insure, it is not a report of a complete history of recorded documents relating to the property. A preliminary report is a statement of terms and conditions of the offer to issue a title insurance policy, not a representation as to the condition of title. These distinctions are important for the following reasons: first, no contract or liability exists until the title insurance policy is issued: second, the title insurance policy is issued to a particular insured person and others cannot claim the benefit of the policy.

Information Courtesy of Fidielty National Title Insurance Company