CHAPTER 2 THE BUSINESS OF TITLE INSURANCE. © 2008 Dearborn Real Estate Education KEY TERMS Look at the Key Terms Check off any you do not recognize

CHAPTER 2

THE BUSINESS OF TITLE INSURANCE

© 2008 Dearborn Real Estate Education

KEY TERMS

Look at the Key Terms

Check off any you do not recognize


LEARNING OBJECTIVES

• Describe Title Assurance vs. Title Insurance

• Discuss how Title Insurance helps the primary and secondary markets, buyers, sellers and real estate agents


LEARNING OBJECTIVES

• Distinguish a Title Insurer from a Title Agent

• Distinguish Title Liability from Closing Liability


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


Alternative Products to Title Insurance include

• Casualty insurance products

• Borrowers credit score

• “Owner and Encumbrance” reports


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


CO-INSURANCE

• Originally designed for LARGE risks

• Primary Insurer writes policy and puts risk into a pool

• Pool insures any loss in equal amounts


ILLEGAL USE OF REINSURANCE

Some Title Insurers signed Title Agents affiliated with businesses (Lenders, Homebuilders, Real Estate Agents) that could bring in title work.


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.


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 ....”


Many Sham Title Agencies were Shut Down.


Title Agents are a Risk for Insurers

Title Agency Owner Missing along with $3 Million from escrow account


Affiliated Businesses

Are NOT illegal so long as they provide services required under RESPA


Title Insurance protects...

Lenders, Buyers, Real Estate Agents


Lenders Policies

• Indemnify lenders from loss

• Standardized forms homogenize complicated state laws for easy review


Lenders Policies

• Make sale of mortgages easier, giving lenders more money to lend

• More money to lend makes Home ownership easier


Financiers on the secondary market

require title insurance to protect their investment.


The Secondary Market

assures a constant source of money for housing


Title Insurance Protects Homeowners Title Insurance Protects Homeowners and their Investmentand their Investment


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!


Title Companies often

“insure over” title problems for lenders by

providing “affirmative coverage”

LOW

RISK


Insuring over a title problem is often available for your buyer...

Ask for it!Ask for it!


Recognize and understand “Notice of Title Defect”

It is important information for your buyer.


An Owner’s Policy is different from a Lender’s Policy

Owner’s Policies are for the full sale price of the property.


Lender’s Policies cover the remaining loan balance no buyer’s equity.


An Owner Policy is different from Lender Policy

Owner’s Policies can last forever, as in corporate ownership or a trust.


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.


A title company is either a Title Insurer (Big guy with $)

or a Title Agent(little guy who

writes policies)

Title agentTitle Underwriter


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.


ClosingClosing liability liability vs. vs.

Title insuranceTitle insurance liability liability

SOS


Title Policies indemnify onlyTitle issues


To Protect the buyers $$$ when closing obtain a

“Closing Protection Letter”

for the buyer from the

Underwriter


Closing Protection Letters indemnify against closing errors and theft of funds by a Title Agent.

Review Questions

Documents

CHAPTER 2 THE BUSINESS OF TITLE INSURANCE. © 2008 Dearborn Real Estate Education KEY TERMS Look at the Key Terms Check off any you do not recognize