CHAPTER 2 THE BUSINESS OF TITLE INSURANCE
Dec 22, 2015
© 2008 Dearborn Real Estate Education
KEY TERMS
Look at the Key Terms
Check off any you do not recognize
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LEARNING OBJECTIVES
• Describe Title Assurance vs. Title Insurance
• Discuss how Title Insurance helps the primary and secondary markets, buyers, sellers and real estate agents
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LEARNING OBJECTIVES
• Distinguish a Title Insurer from a Title Agent
• Distinguish Title Liability from Closing Liability
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Title Assurance vs. Title Insurance
• Title Assurance is a broad termincluding surveys, maps, title opinions, anything having to do with title
• Title Insurance is a specific contractual obligation
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Alternative Products to Title Insurance include
• Casualty insurance products
• Borrowers credit score
• “Owner and Encumbrance” reports
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REINSURANCE
• Designed for LARGE risks – too big for one insurer to handle
• Insurer writes policy and “cedes off” a portion of the risk to others for a fee
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CO-INSURANCE
• Originally designed for LARGE risks
• Primary Insurer writes policy and puts risk into a pool
• Pool insures any loss in equal amounts
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ILLEGAL USE OF REINSURANCE
Some Title Insurers signed Title Agents affiliated with businesses (Lenders, Homebuilders, Real Estate Agents) that could bring in title work.
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ILLEGAL USE OF REINSURANCE
These Title Agents were offered an opportunity to Re-insure the business they brought in, for a fee.
Lawsuits determined the Title Insurer in effect was paying the agent for the business.
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RESPA
“No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise ... incident to or a part of a real estate settlement service involving a federally related mortgage loan ....”
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Title Agents are a Risk for Insurers
Title Agency Owner Missing along with $3 Million from escrow account
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Affiliated Businesses
Are NOT illegal so long as they provide services required under RESPA
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Title Insurance protects...
Lenders, Buyers, Real Estate Agents
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Lenders Policies
• Indemnify lenders from loss
• Standardized forms homogenize complicated state laws for easy review
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Lenders Policies
• Make sale of mortgages easier, giving lenders more money to lend
• More money to lend makes Home ownership easier
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Financiers on the secondary market
require title insurance to protect their investment.
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The Secondary Market
assures a constant source of money for housing
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Title Insurance Protects Homeowners Title Insurance Protects Homeowners and their Investmentand their Investment
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Real estate agents
BEWARE
NEVER tell your buyer she does not need an owners policy.
You put yourself at risk if there is a problem later!
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Title Companies often
“insure over” title problems for lenders by
providing “affirmative coverage”
LOW
RISK
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Insuring over a title problem is often available for your buyer...
Ask for it!Ask for it!
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Recognize and understand “Notice of Title Defect”
It is important information for your buyer.
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An Owner’s Policy is different from a Lender’s Policy
Owner’s Policies are for the full sale price of the property.
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Lender’s Policies cover the remaining loan balance no buyer’s equity.
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An Owner Policy is different from Lender Policy
Owner’s Policies can last forever, as in corporate ownership or a trust.
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An Owner’s Policies are different from Lender’s Policies
Mortgage policies decrease in value as the loan is paid down and
expire when the loan is paid off.
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A title company is either a Title Insurer (Big guy with $)
or a Title Agent(little guy who
writes policies)
Title agentTitle Underwriter
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Title InsurersTitle Insurers take liability under the policy. take liability under the policy.
Title AgentsTitle Agents write policies of Title Insurers. write policies of Title Insurers.
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ClosingClosing liability liability vs. vs.
Title insuranceTitle insurance liability liability
SOS
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To Protect the buyers $$$ when closing obtain a
“Closing Protection Letter”
for the buyer from the
Underwriter
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Closing Protection Letters indemnify against closing errors and theft of funds by a Title Agent.