Weekly Rate & Market Update 5-6-16
Question of the week: Why do I need title insurance?
Answer: This is a common question I have been asked my whole career and it has come up in a few conversations lately as more new home owners enter the market. Every buyer and seller in a real estate transaction sees charges for a title insurance policy, but few know what the purpose of the policy is, other that something gets insured. Is it necessary? Like all insurance, only if you need it and if you need it you will be very glad to have it; like auto or homeowner’s insurance.
Simply put title policies insure that things are what they seem. If you buy a home the title policy is insuring that you are the rightful owner, that no one can come along later and claim ownership of your property. If you are a lender making a loan secured by real property the title policy insures that your lien has a certain priority on title and that the only liens against title are documented and disclosed. Title insurance covers any title issues that occur up to the date deeds are recorded when the policy goes into effect, it does not cover any issues that occur after your transaction, those are covered by the next policy when you sell or refinance.
Throughout the years I have heard many complaints about the need for title insurance and the cost relative to what is being provided. A common complaint is that most title policies insure the work that title companies have performed before, so why charge so much. Another complaint is that title policy claims are so rare that the fee, or premium, should be lower. Like the excellent driver who has no tickets or accidents on his record, most homeowners, particularly in areas where the housing stock is older and has transferred several times over the years with each transaction requiring a new title policy, the purchaser of title insurance wonders why the expense for insurance that likely will never be used. Then the excellent driver with the perfect record gets in a bad accident caused by an uninsured driver; how glad is he that he has quality auto insurance and has kept up the premiums? Similarly the homeowner that suddenly faces a title challenge is glad to have paid the title premium at closing.
When title insurance companies do pay claims they are usually very hefty, think tens or hundreds of thousands of dollars. Because of this most of the revenue title insurance companies collect do not go to paying claims, in fact the industry average is that only about 5% of premium revenue goes to claims compared with approximately 70% for auto insurance. Title insurance companies spend the bulk of their premium revenue on loss prevention, i.e. research.
What if the owner of your current home purchased the property eight years ago from a seller who had a lien against the property that was recorded improperly in the county records and that lender stepped forward to collect on your home and possibly force the sale? What if you purchased your home from a seller with an IRS tax lien that was unpaid? How about an estate that sold a property that was later challenged by an heir as being improper and a judge agrees? Each of these could be a very legitimate claim against a title policy that could lead to a very large payout for the title company.
Even more challenging for title companies today are bank foreclosures and short-sales. Lenders that hold seconds are finding out that some properties are transferring without their consent to pay off and are coming back to the enforce their liens as unsatisfied. In such instances the title company that insured the sale and that all liens are satisfied would have to make restitution to the lien holder.
Title policy claims are rare because of the loss prevention that is performed by the title company during the escrow or settlement period to investigate the property, seller, liens against title and other factors that may lead to a claim down the road. Unfortunately you will not know if the title company, in particular the title officer, did a good job investigating the title until you find someone making a claim against your title. This is why it is critical to have a title officer who is experienced and knowledgeable. Over the years I have had perhaps three or four clients with a title claim. Easements for shared driveways, a piece of vacant land included in a sale that maybe wasn’t, power lines, even fences, have been issues that have cropped up.
Far more prevalent in recent years, especially when most sales were controlled by banks as sale was either foreclosure or short sale, are title issues that are discovered and corrected during escrow. Divorce settlement with a recalcitrant spouse, estate issues, private party second from a prior seller are other issues that pop up during escrow that require the title company to sort through the various filings and legal issues to determine if clear title can be conveyed or not. Your title policy premium pays for all the work done by the title company prior to closing so they can insure you are getting what you think you are getting, clear title. And if you don’t it is their obligation to pay to correct any claims that may arise later.
Are you absolutely certain there are no forgeries on deeds, unpaid liens, easements improperly recorded or illegal confiscations of title on your property?
Aren’t you glad you have title insurance?
Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.
It’s the first Friday of the month, which means not only is it the monthly First Friday’s event on Atlantic Avenue in the Bixby Knolls section of Long Beach, but more importantly for the rest of the nation the day when employment data is released. Following up on the disappointing GDP numbers from last week the Labor Department’s April jobs’ report did not meet expectations for job growth. Adding only 160,000 jobs nationwide combined with the lackluster growth in the 1st quarter, the economy could be defined as between moribund and sluggish. The jobs report was rate friendly.
Rates for Friday May 6, 2016: Rates are soft but not moving down as expected. We are in one of those markets where lenders are holding onto some of the market gains to hedge against a sudden change in the market. If the soft environment continues into next week we may see rates dip a bit more, “may” being key word. Market is also poised to see a bump in rates with investors taking profits and moving back into stocks when those markets rise again. Be cautious, lock when you can through the end of your escrow period.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.500% Flat
30 year high-balance conforming 3.625% Flat
30 year FHA 3.25% *** Flat
30 year FHA high-balance 3.25% *** Flat
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have no points and credit towards closing costs, recent rate change reduces credits
Milestone week in the Smith household as we managed to be alerted to a very good value on a used car that we purchased. Subsequently the new to the family vehicle was driven to school by our daughter, opening a new window of anxiousness for Dad as he watched her drive away. Our most important job as parents is to ensure our kids are able to become independent and support themselves and their families and contribute to their communities—driving and the independence it brings is pretty important in that process. Thankfully she is rule-follower and cautious in her time behind the wheel.
For those so inclined enjoy your mint juleps tomorrow!
Have a great week,
Dennis
