Buying a house is an exciting time and the more you know about the process, the more relaxed you’ll be going through it. The American Land Title Association (ALTA) partnered with the Designing Spaces television series on Lifetime to explain to homebuyers the closing process and the importance of purchasing an owner’s title insurance policy.
The segment does a great job explaining how the work by title insurance professionals provides consumers peace of mind when purchasing a home.
Arizona Property taxes are levied twice a year for 1/2 year periods and paid in arrears.
1st Half Jan-Jun taxes: due October 1st of that same year 2nd Half Jul-Dec taxes: due March 1st of the following year.
Bills for the current year’s taxes are mailed in September and include 2 coupons for each half of the year. When there is a mortgage loan on the property the tax bill is mailed to the lender as these taxes make up part of the monthly payment.
Property taxes are prorated at closing for taxes accrued but not yet due and payable, based on the yearly tax amount and the closing date.
For cash transactions Escrow will pay the full year’s tax, if closing date occurs after tax bill information is available.
The new Loan Estimate is one of two forms required by the CFPB and will be used for impacted loans originated on or after October 3rd 2015. This form is provided to consumers by the lender within three days in the loan application. It replaces early Truth In Lending statement and the Good Faith Estimate and provides a summary of key loan terms, an estimate of the loan costs, and closing costs. The intent of this form is to promote easy comparison shopping.
Real Estate Settlement Procedures Act commonly known as RESPA governs the mortgage and residential real estate closing industry. It is intended to prevent kickbacks & unnecessary costs. In addition it gives consumers buyers and sellers full disclosure of the costs for a transaction it was originally enforced by the Department of Housing and Urban Development.
The Truth in Lending Act known as TILA governs all types of credit and lending industries. It requires the disclosure of credit terms, costs of credit, calculations, and a projected payment schedule. It was originally enforced by the Federal Reserve Board.
Congress passed the Wall Street Reform and Consumer Protection Act (commonly known as Dodd-Frank) which went into effect July 2010. The law created the Consumer Financial Protection Bureau or CFPB, and moved enforcement of RESPA to this new Bureau. The law also mandated that the two sets of disclosures be combined into one Integrated Disclosure.
“REALTOR® Magazine presented a live webcast on July 16, 2015, to help real estate professionals understand the changes to the closing process that are scheduled to go into effect later this year. The program featured attorney Phil Schulman, a partner with K&L Gates and former official with the U.S. Department of Housing and Urban Development who specializes in federal closing rules, and NAR Senior Counsel Finley Maxson.
As part of the changes, which stem from the merger of the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA), two new forms—the Loan Estimate and the Closing Disclosure—will replace the HUD-1 settlement form and the Good Faith Estimate. Samples of the new forms are available from the Consumer Financial Protection Bureau.”
Title insurance protects against problems affecting the title to a home, which is likely a families most valuable asset. Homebuyers are protected from ownership issues by purchasing an Owner’s Policy of title insurance (for a full list of policies and comparisons- click here), which ensures that the title to their property is clear of liens or encumbrances, such as unpaid mortgages, property taxes or child support liens, to name just a few.
The American Land Title Association created this short video to explain the importance of title insurance.
You may have heard about the Final Integrated Mortgage Disclosures Rule from the Consumer Financial Protection Bureau (CFPB), which was tasked with combining the Truth in Lending Act and the Real Estate Settlement Procedures Act (RESPA) disclosures. Below is a short video describing some of the impact these changes will have on your real estate transactions beginning August 1st 2015.
The FTC’s Safeguards Rule, enacted under the Gramm-Leach-Bliley Act, requires financial institutions to implement reasonable policies and procedures to ensure the security and confidentiality of sensitive non-public customer information (NPI). In addition we must encrypt certain documents containing NPI in accordance with CFPB compliance requirements and ALTA Best Practices requirements.
When you receive an encrypted email, you will need to create an account in order to open the email. No matter which email you use; be it web based like Gmail/Yahoo or POP3 like Outlook, the procedure for setting up the account is the same once you have received the initial email. (For this example I set
up a sample Gmail account to show the steps). You will initially receive 2 emails, the notification to create an account and a notification of the encrypted message.If you have not registered yet, you will be prompted to create an account and choose a password with McAfee. A guide to assist you is posted below.
(Email Encryption Guide and FAQ)
The process of buying a home is complicated. Consumers can become confused and frustrated with the mounds of paperwork and documents to sign. Fees show up at closing that can sometimes surprise the buyer.
Title insurance is one of those charges little understood by homebuyers, who often see it as just another fee they have to pay to buy a home. As an important advisor to your clients, you can help them understand the value that title insurance provides, and the dangers that can be incurred without it.
Title insurance protects against problems affecting the title to a home, which is likely your client’s most valuable asset. Homebuyers are protected from ownership issues by purchasing an Owner’s Policy of title insurance (for a full list of policies and comparisons- click here), which ensures that the title to their property is clear of liens or encumbrances, such as unpaid mortgages, property taxes or child support liens, to name a few. Additionally, title professionals will look for anything that could limit the use of the property such as utility easements. When a title professional finds an issue, they work to resolve it– typically without you even knowing about it.
The majority of the one-time fee paid for an Owner’s Policy covers the cost for professionals with local expertise to discover, identify and repair issues caused by title issues that occurred in the past. Because of these preventive measures, title insurance is fundamentally different from other forms of insurance, which charge annual premiums to provide insurance protection for future events. This also means that title insurance has lower loss rates than other forms of insurance. In title insurance, a claim is serious, and a loss means your client’s homeownership is threatened. Low loss rates are good for consumers. The curative work performed by title agents (to contact your TSA title department click here) minimizes the fear, disruption and distress that title claims have on homeowners. An Owner’s Policy provides protection for as long as they or their heirs own the property. Having an Owner’s Policy means that the cost of defense and legal fees are paid by the title insurer for the homeowner.
Here’s an example of how an Owner’s Policy can protect a homeowner. Say your client recently purchased a new home from a builder. Unfortunately, the builder failed to pay the roofer. Wanting to be paid, the roofer filed a lien against the property. Without a title search alerting your client to this lien, and an Owner’s Policy protecting them, your client would become responsible for paying this debt—meaning they’d be paying the roofer instead of purchasing new living room furniture.
When purchasing real estate, consumers are free to select their own title professional or company. You can also make a recommendation or encourage consumers to ask friends and neighbors if they were happy with the title company they worked with and get a referral. Also suggest to your clients that they utilize a company that is part of its state’s title association or the American Land Title Association. If they are members, they are likely keeping abreast of state and federal trends and requirements.
Title insurance rates are regulated by state insurance departments. In addition, title insurance companies are regulated by the Consumer Financial Protection Bureau (CFPB). Keep in mind that title insurance industry practices vary due to differences in state laws and local real estate customs. Who pays for the Owner’s Policy varies from state to state and sometimes even within a state.
Together, Realtors, land title insurance professionals and other stakeholders involved in the real estate transaction can protect consumers and provide them with a better experience to the real estate closing process.
For more information about title insurance your clients can go to our website at www.titlesecurity.com or www.homeclosing101.org.
The Cost of Title Insurance IS Worth the Investment ~ Food for Thought
Fewer claims do not equate with a policy’s value
Whenever there’s an article in the news about title insurance, all too frequently there is criticism about the cost. This perception occurs because there are fewer claims with title insurance compared to other forms of insurance. The higher percentage of claims an insurance company pays should not be equated with the value and cost of the policy. This is especially true with title insurance.
Most types of insurance cover incidents that may occur in the future, which is the case with health, life, auto and homeowner’s insurance. The cost of these policies is based on the insurers’ estimation of how much they will likely pay out in claims over a given period, plus administrative costs and a reasonable profit. The volume of claims is typically high with these types of insurance. Title insurance, on the other hand, is based on loss prevention, which means that a much larger percentage of the premium dollar is spent preventing title problems from occurring. These upfront costs cover searching, identifying and eliminating risks that could result in a future claim.
A typical title search involves searching the public records, including visits to the offices of recorders or registers of deeds, clerks of courts and other officials, and the company’s own title plant. Title professionals look for such things as second or third mortgages, judgments, liens, street and sewer system assessments, special taxes and levies, and numerous other matters. No other line of insurance does this level of due diligence before issuing a policy.
Over the long term, title insurers pay fewer claims than other insurers, but their operating expenses are much higher because of these upfront costs. To compare, operating expenses for property and casualty companies, which issue auto and homeowners insurance, is less than 30 percent of revenues. The expense ratio for title insurers averages 90 percent.
Another reason some mistakenly believe that title insurance costs are high is because they don’t fully understand its value. Title insurance protects the single largest financial investment most people make. One out of every four residential real estate transactions has an issue with the title, which is usually resolved by title professionals before the buyer closes.
When there is a claim, it is often due to a title defect that was undetected during the title search. The most common problems resulting in title claims are the result of fraud and forgery. And, when there is a loss, it is usually significant—sometimes in the hundreds of thousands of dollars.
An Owner’s Policy of Title Insurance, which can be obtained in addition to a Loan Policy, remains in effect for as long as the policyholder (or their heirs) owns the property that is insured. A claim could actually be filed 50 or 100 years after the policy was issued. And, an Owner’s Policy covers legal expenses involved in defending the title on behalf of the homeowner.
The cost for title insurance is a one-time fee, as opposed to other lines of insurance that charge a monthly, quarterly or annual premium over the life of the policy. When you consider the size of the asset being protected, title insurance is probably the best value among the majority of costs associated with closing on a new home.
The American Land Title Association helps educate consumers about title insurance so that they can better understand their choices and make informed decisions. Homebuyers, regulators and legislators are encouraged to check out the website, www.homeclosing101.org, to learn more about title insurance and the closing process.