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Title Insurance | Real Estate Exam Prep - YouTube
Channel: The Real Estate Classroom
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hey everybody my name is paul pacheski
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and welcome to the real estate
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classroom channel and in today's video
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we're going to discuss a concept called
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title insurance
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now if you have not watched
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the title insurance sister video
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abstract of
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title please do that first i'm going to
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leave a link right up here in the upper
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right hand corner of your screen
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i highly suggest you watch the video on
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abstractive title then come back to
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title insurance
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because i think what it'll do is help
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you with the learning process
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and understanding these two concepts
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alright so
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coming up title insurance
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[Music]
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all right in today's video we're going
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to discuss a concept called title search
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and title insurance now what is the
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difference between
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title insurance and let's say an
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abstract you went back and watched that
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video abstractive title so what's the
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difference well the basic difference is
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an abstract does not guarantee good
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title
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but when title insurance is issued there
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is a guarantee
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or an indemnification of good title now
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again
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when does all of this happen uh for
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illustrative purposes understand
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all of this is going to happen prior to
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closing so
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the buyer goes out finds a home they put
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an offer in on a on the property they
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get it accepted
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and that period between contract and
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close there are a lot of things going on
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called
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due diligence you know they're getting
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home inspections and septic
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and well inspections and those type of
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things well title is also being
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researched
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and remember title is ownership and
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someone is doing research about the
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ownership
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history of this property just like we
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talked about with abstracts
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so that's called a title search so
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someone is going to order a title search
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and just like
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the abstract it'll be a person that's
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going to go back and research
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the ownership they're going to make sure
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that there is uh
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no liens and encumbrances and those type
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types of thing against the property and
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then once the search is done
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and it's been deemed satisfactory they
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issue a title insurance policy
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so that is kind of the process from a to
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z
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all right but what is title insurance
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specifically i got the definition on
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your screen
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title insurance is a form of
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indemnification it's
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an insurance policy that protects the
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mortgagee
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key term don't forget the mortgagee is
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the lender
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and the buyer from financial loss
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sustained from defects
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on eight on title to a specific piece of
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property
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the most common type of title insurance
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now there's more than these two
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but these are the two that you need to
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know for your real estate exam
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there is the mortgagees policy which is
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the lender policy
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and then the owner's policy
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all right so what is the process of
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obtaining title insurance well we
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discussed part of it already
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where someone is going to do a title
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search meaning it's just a
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history search of the property to
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identify
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uh the previous owners to find out if
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the current owner
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is able to give free clear marketable
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title to the to the buyer
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it's going to list any instruments
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that's been placed against the property
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that may impact uh or put a cloud on the
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title
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or place a defect on the title and then
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it's going to have
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it's going to list those things out now
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a title search that's what we just
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discussed is done
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and then an abstractive title is
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generated an
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abstractive title is the summary report
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of the chain of title and don't forget
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the chain of title is just the history
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of all the different owners and
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instruments that have been placed
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against
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the property so that summary report
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is called an abstractive title and don't
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forget the title search that's being
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done
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it identifies things that impact
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ownership or title such as liens and
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conveyances
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and deeds and mortgages and easements
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and actually even lawsuits that have
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been filed
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particularly like divorce cases because
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of the marital interest in most states
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all right so once the the report has
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been done
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there's gonna be and it's number two a
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title commitment or sometimes called a
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title
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binder that is issued and that title
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binder that title commitment is going to
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have different sections and we're not
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going to go into detail but one thing
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you have to understand is it's going to
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identify
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the current owner it's going to identify
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the current
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liens and encumbrances against the
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property and then it's going to have
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exemptions and those exemptions are
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going to say
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basically we are not going to issue
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title insurance that's going to cover
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these specific items unless they are
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taken care of
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prior to closing so for example current
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mortgage the current mortgage that the
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current owner has will have to be paid
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off
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otherwise this title insurance will not
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cover anything that results from
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that so that's what it is number three
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it protects or indemnifies against loss
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due to defects
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on the title or what we call clouds on
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title
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and basically it just ensures that the
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buyer's going to get free clear
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marketable title
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so that's what a title commitment or a
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title binder is
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all right so specifically what does
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title insurance
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insure against now there are two
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policies now there's more than two
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but there are two that we have to know
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for the purposes of this video
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and the real estate license exam there
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is the owner's policy
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and then there's the mortgagee or the
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lender's policy
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now let's talk about the owner's policy
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first number one is
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the mo the owner's policy is for
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or insures up to the purchase price all
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right
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number two it's a one-time premium
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that's paid by the seller
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remember the seller is the current owner
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that's the owner policy
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the buyer can actually get a policy if
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they want to
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but here we're just talking about the
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owner's policy
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and number three it protects against
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things like forgery so if the documents
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were forged or
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there were incompetent grant tours there
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was a defect or something wrong with the
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document
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when it was being prepared or did
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delivery actually happen
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it protects against any unknown errors
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that may pop up
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it protects against any kind of
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misfilings of documents so if the
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the title company knew for example about
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a tax lien when they were doing the
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title search but they
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but they missed it and they didn't pay
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it excuse me pay it off
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that would be a misfiled document and
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then community property issues
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that's why title income title companies
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and escrow companies
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really want to know about uh the the
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person's marital status and their
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marital history because of that marital
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interest that so many states require
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that's what the owner
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policy is going to cover so if the buyer
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closes on the property
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let's give you an example the buyer
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closes on the property
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and then let's say that the
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the escrow company that did the research
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miss the fact that the ex-spouse
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the owners that the previous owners
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ex-spouse was supposed to sign
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and now the ex-spouse is making a claim
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that
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uh the new owner would be protected
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under title insurance
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what about the mortgage ease
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policy remember the mortgage is the
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lender well number one is
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this insurance policy only ensures up to
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the amount that's borrowed which is
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always
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different than the than the purchase
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price
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because think about it the lender isn't
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interested in what the purchase price is
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they only want to ensure the amount that
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they borrowed
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okay like the owner's policy it's a
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one-time premium
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and it's paid by the borrower the lender
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doesn't pay for this policy the lender's
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saying if you want me to loan you the
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money then you're going to pay for our
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title insurance so the borrower pays it
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and then it protects about it protects
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against all the same
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things that the owner's policy does it
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protects against forgeries incompetent
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grantors
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defects and doc prep unknown errors
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misfiled documents and community
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property issues
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as we discussed but the mortgagees
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policy is going to be what we call
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expanded
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or extended coverage
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and again that's a term of borrowing the
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money the
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lender or the mortgagee is saying
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borrower if you want my money not only
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are you going to provide us
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with title insurance we want the
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expanded coverage
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and the expanded coverage covers things
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like mechanics liens adverse possession
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issues encroachments and so forth
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okay so what doesn't title insurance
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cover
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well number one it doesn't cover any
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existing encumbrances such as
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easements current taxes that are due
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deed restrictions known
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errors those type of things so
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remember i said in the title commitment
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or the title binder there's going to be
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a list of exemptions
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or exceptions those are things that the
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title insurance
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will not cover unless they are corrected
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prior to closing
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that's what we're talking about here so
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prior to closing or
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at the closing table the escrow or title
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closing company is gonna
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make sure that those current taxes are
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paid they're going to make sure that the
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all the grantors sign a deed conveying
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title properly they're going to ensure
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all of those things are
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done so then the title insurance will
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kick
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in all right they don't cover known
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defects against so for example
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let's say that there there was a an
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error that was known or better yet let's
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say there was
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knowledge of an ex-spouse
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and no one did anything about it they
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would not cover that because it's known
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and then zoning zoning changes all the
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time the biggest one i would tell you
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here
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is if this property is zoned industrial
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and it's illegally being used as
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residential
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so the property's use is not compliant
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with zoning
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title insurance is not going to cover
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that so that's what that is that's what
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it means
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all right that's title searches and
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title insurance now if you have not
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watched the abstractive title video i
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highly recommend it it's right here to
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my right click on that box
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take a look at that video if you haven't
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subscribed to the channel please do so
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i'd appreciate it
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click the little circle to my left and
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make sure that if you have comments or
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questions
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you put them down below all right guys
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i'll see you in the next video
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