What Every REALTOR® Should Know About Owner’s Title Insurance

Make sure all of your clients are protected

You’re a real estate agent, so you know that buying a home can be overwhelming for many of your clients. Homebuyers can easily feel confused and frustrated by the mounds of paperwork they have to sign. Plus, all the fees associated with closing can sometimes be a surprise even to an experienced buyer.

Owner’s title insurance is one of those items often misunderstood by homebuyers at closing, yet its value is tremendous. As an important advisor to your clients, you are in the position to help them understand the value of owner’s title insurance and the dangers that can be incurred without it. 

What is title insurance?

Owner’s title insurance is a policy that protects homebuyers’ property rights. For the same reasons that the bank requires a lender’s insurance policy, a homebuyer obtains owner’s title insurance to protect their legal claims to the property. 

How it protects your clients

Say, for example, your client recently purchased a new home from a builder, but the builder failed to pay the roofer. Wanting to be paid, the roofer filed a lien against the property. Without owner’s title insurance, your client would be responsible for paying this existing debt—meaning they’d be paying the roofer out of pocket instead of purchasing something nice for their new home, like new living room furniture. This is just one example of how owner’s title insurance protects homebuyers’ from various significant risks. With owner’s title insurance, your client would be protected from certain legal or financial responsibilities.

Enduring value

The good news is that owner’s title insurance protects homebuyers, as long as they or their heirs* own the home. For a low, one-time fee, homebuyers can know they are protected from inheriting existing debts or claims to their property.

State regulations and CFPB

In Texas, title insurance is regulated by the Texas Department of Insurance. In addition, the Consumer Financial Protection Bureau (CFPB) regulates closing and settlement practices which can impact title insurance. Keep in mind that title insurance industry practices vary due to differences in state laws and local real estate customs.

Free resources for Realtors®

Together, real estate agents, land title insurance professionals and other stakeholders involved in real estate transactions can provide homebuyers with the protection they deserve during the home closing process.  For more resources relating to title insurance and the homebuying process, visit: www.republictitle.com/residential-resources

*This advertising offers a brief description of insurance coverages, products and services and is meant for informational purposes only. Actual coverages may vary by state, company or locality. You may not be eligible for all of the insurance products, coverages or services described in this advertising. For exact terms, conditions, exclusions, and limitations, please contact a title insurance company authorized to do business in your location.

eClosing 101: Hybrid, In-Person and Remote Online

Broadly speaking, eClosings fall along a continuum that include three basic types – hybrid, in-person, and remote online. These methods incorporate varying amounts of the eClosing elements. In today’s blog, Dennis Pospisil, Senior Vice President/Digital Settlement and Signing Services, breaks down the different types of eClosings.

Hybrid eClosing “Hybrid” (“procedural” documents only closing) – At the low-end of the spectrum is the Hybrid or procedural documents only eClosing. This “entry-level” eClosing only involves electronic documents that do not need to be notarized or recorded, such as loan disclosures and settlement statements. The remainder of the closing takes place in a traditional manner.

All parties appear in person at the closing table, but some documents are signed electronically and some, typically collateral, notarized, and witnessed loan documents are wet signed. For documents that are electronically signed, generally one electronic signature is applied across all documents. Hybrid eClosings are the most popular and most widely used type of eClosing.

In-Person eClosing In-person – The middle-tier approach to eClosing involves electronically recording electronic documents with electronic signatures and electronic notarizations.  The closing takes place in-person utilizing a shared computer or tablet.

All parties appear in person either at the settlement agent’s office or in the presence of a mobile notary, and all documents are both signed and notarized electronically. Very few closings are full eClosings because a large percentage of lenders are not ready to have the note electronically signed.

Remote Online eClosing Remote Online eClosing (“RON”) is a new, technology-driven notarial process that allows the signer to appear before the notary over a live audio-video feed when executing digital documents.

Click here if you would like more information on our digital settlement services.

The FAQs of Title Insurance for Homebuyers

For most of us, a home is the largest investment we’ll make in our lives. To buy with confidence, get owner’s title insurance. It’s the smart way to protect your property from legal claims. To help you understand how owner’s title insurance works, here are answers to common questions.

What is title?

Title is your right to own or use your property. Title also establishes any limitations on those rights.

What is a title search?

A title search is an early step in the homebuying process to uncover issues that could limit your rights to the property. After the title search is complete, the title company can provide a title insurance commitment and then, after any requirements are met and closing occurs, a title policy.

What is title insurance?

If you’re buying a home, title insurance is a policy that protects your investment and property rights.

There are two different types of title insurance: an owner’s policy and a lender’s policy.

  1. An owner’s policy is the best way to protect your property rights. Either the buyer or seller may pay for this policy. Ask your title professional how it’s handled in your area.
  2. A lender’s policy is usually required by the lender and only protects the lender’s financial interests. The buyer typically pays for this policy, but that varies depending on geography. Ask your title professional how it’s handled in your area.

Why should I purchase owner’s title insurance?

Owner’s title insurance protects your investment in your property from certain future legal claims regarding ownership of, or liens on, your property. For a one-time fee, you and your heirs* receive coverage for as long as you own your home. The owner’s policy also covers potential legal fees and court costs for settling claims covered by your policy.

What does owner’s title insurance cover?

Sometimes undiscoverable defects can come up after the title search. Under an owner’s title insurance policy, you are protected against certain undiscovered errors in the title.

Title issues include unknown:

  • Outstanding mortgages and judgments, or a lien against the property because the seller has not paid his taxes
  • Pending legal action against the property that could affect you
  • Unknown heir of a previous owner who is claiming ownership of the property

Unforeseeable title claims include:

  • Forgery: making a false document
    • For example, the seller misrepresents the identity of the person who sold the property.
  • Fraud: deception to achieve unfair gain
    • For example, someone steals your identity and either sells your house without your knowledge or consent, or takes out a second mortgage on the property and walks away with the money.
  • Clerical error: inconsistent paperwork and historical records
    • For example, an unforeseeable discrepancy in the property or fence line can cause confusion in ownership rights.

What does owner’s title insurance cost?

The one-time payment for owner’s title insurance is low relative to the value of your home. In Texas, rates are based on the sales price of the property and are set by the Texas Department of Insurance. You can calculate title insurance premium rates using the insurance calculator found on our website.

How long am I covered?

Your owner’s insurance policy lasts for as long as you or your heirs* own your property. Your life will change over time, but your protection never will.

What happens at closing?

Closing is the final step in executing the homebuying transaction and involves signing the documents that allows the creation of your new loan (if applicable), and transfer of ownership to occur. Upon completion of the closing and funding process, you get the keys to your home!

 

*This offers a brief description of insurance coverages, products and services and is meant for informational purposes only. Actual coverages may vary by state, company or locality. You may not be eligible for all of the insurance products, coverages or services described in this advertising. For exact terms, conditions, exclusions, and limitations, please contact a title insurance company authorized to do business in your location.

Helpful Terms for Buying/Selling Your Home

Buying or selling a home is one of the most important undertakings of a lifetime. When buying or selling a home, there are many real estate terms that may be unfamiliar to you. Check out this list of commonly used terms that you may find helpful during the process.

AIR:  Adjustable Interest Rate

AMORTIZATION SCHEDULE: A schedule showing the principal and interest payments throughout the life of the loan.

APPRAISED VALUE: An opinion of the value of a property at a given time, based on facts regarding the location, improvements, etc. of the property and surroundings.

CD/CLOSING DISCLOSURE: This form is a statement of final loan terms and closing costs. Sometimes referred to as ICD or Integrated Closing Disclosure.

COMMITMENT:  The document by which a title insurer discloses to all parties connected with  a particular real estate transaction all the liens, defects, and burdens and obligations that affect the subject property.

CREDIT REPORT: A report on the past ability of a loan applicant to pay installment payments.

DOCUMENT PREPARATION FEE: A charge by an attorney for preparing legal documents for transaction.

ESCROW FEE: A fee charged by the title company to service the transaction, to escrow monies, and cover documents. Usually split between buyer and seller.

ESCROW ACCOUNT: Funds held by the lender for payment of taxes and insurance when due. Usually does not include maintenance fees.

HOA ASSESSMENT FEES: Charged by the homeowner’s association as set out in subdivision restrictions.

HOMEOWNER’S INSURANCE:  Protects the property and contents in case of loss; must be for at least the loan amount or for 80% of the value of the improvements, whichever is greater.

INSPECTIONS: An examination of property for various reasons such as termite inspections; to see if required repairs need to be made before funds are received, etc.

INTEREST: Money paid regularly at a particular rate for the use of money lent.

LOAN TITLE POLICY: Required by the lender to insure that the lender has a valid lien; does not protect the buyer.

ORIGINATION FEE:  A fee the buyer pays the lender to originate a new loan.

OWNER’S TITLE POLICY: Insures that the buyer has title to the property, that there are no other claims as to ownership. Among other matters, it also insures access to the property, the right to occupy the property, good and indefeasible title, and that there are not other types of specific liens against the property. 

POINT:  1% of the loan amount.

PREPAIDS: Items to be paid by the buyer in advance of the first scheduled payment of the loan (Homeowner’s Insurance Premium, Mortgage Insurance Premium, Prepaid Interest, Property Taxes and a maximum of three additional items).

PREPAYMENT PENALTY:  Charged by the lender for premature payment of a loan balance.

PRIVATE MORTGAGE INSURANCE: Insurance against a loss by a lender (mortgagee) in the event of default by a borrower (mortgagor).

REALTOR FEES:  An amount paid to the REALTOR® as compensation for their services. RECORDING FEES: Charged by the County Clerk to record documents in the public records. RESPA:  Real Estate Settlement Procedures Act.

RESTRICTIONS: Certain limitations or conditions related to the future use of the property put on the property by a prior owner. These restrictions stay with the property until they expire or are amended as per certain procedures set forth in the restrictions.

SURVEY:  Confirms lot size and any encroachments or restriction violations.

TAX CERTIFICATES: Certificates issued by taxing authorities showing the current year’s taxes, the last year the taxes were paid, and any delinquencies to be collected at closing.

TAX PRORATION: Means that the payment of the taxes for the year of sale are divided between the Buyer and Seller, usually based on the amount of time the Seller owned the property during that year. Prorations, and how they are calculated, are typically addressed in the Contract of Sale.

TIL:  Truth in Lending.

TIP: Total Interest Percentage; the total amount of interest the borrower will pay over the loan term as a percentage of the loan amount.

TOTAL OF PAYMENTS: Total amount paid after all payments of principal, interest, mortgage insurance and loan costs are scheduled. 

To download our Helpful Terms for Buying/Selling Your Home flyer,  visit Helpful Terms for Buying and Selling Your Home.

ABCs of Title Commitment

A Commitment is a document the title company provides to all parties connected with a particular real estate transaction. It discloses the title of record to the property as well as all the liens, defects, burdens and obligations that affect the subject properties. It is comprised of four schedules.

Schedules A, B, C and D are as follows:

Actual Facts
Is the Who, What, Where and How Much section of the Commitment. You will see the names of the buyer, record owner (seller), a legal description of the property, the sales price and the name of the lender, if applicable. It is a good idea to double check this information with the contract.

Buyer Notification
This section lists the general and specific exceptions to the property. It will list
items such as survey matters, taxes, easements, setback lines and a variety of other items that will not be covered by the title policy. It is important to review and discuss any questions you have with your title company.

Clear in Order to Close
These items must be resolved in order to transfer title to the new owner. They might include such things as a mortgage that will be paid off at closing, liens for home improvements or unpaid taxes. All items shown on Schedule C should be discussed and resolved before the closing.

Disclosure
This section outlines the ownership of the title company and all the parties who will share in any part of the insurance premium collected to issue the policy. It includes underwriters, title agents and attorneys.

This information is not to be substituted as legal advice and is descriptive only. If you have any concerns about any portion of your title commitment or any portion of Schedule A,B,C, or D, please contact your attorney.

For a PDF version of the ABCs of the Title Commitment, click here.

 

 

 

How Does RON Work?

Remote Online eClosing (“RON”) is a new, technology-driven notarial process that allows the signer to appear before the notary over a live audio-video feed when executing digital documents.

Step 1 Identity Verification

RON uses the latest identity verification technologies to make notarizations more secure.
A. Signer passes a knowledge-based identity quiz
B. Signer submits ID for review
C. Third-party software performs forensic test on ID

Step 2 Audio-Video Conference

The notary and signer talk to each other over a webcam in real-time and observe the necessary digital documents.

Step 3 “Tamper-Sealed” Documents

The notary adds a “tamper-seal” to date/time-stamp the notarized documents.  The seal will indicate whether any of the documents are altered in the future.  The signer downloads a PDF of the completed, digitally signed and digitally notarized, document.

Step 4 Audit Trail and Notary Records

Like with traditional notarizations, the notary keeps a journal logging the basic details of the notarization.  The journal can be kept in a secure digital format that includes a video of the notarial act, which can be used to prove who actually digitally signed the document.

Click here if you would like more information on our digital settlement services.

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Definitions and Rules of a Deferred 1031 Exchange

1031 Exchange
An event where a taxpayer exchanges or trades real property held for investment or used in a trade or business for other real property and defers the capital gains tax on the transaction.

Tax Deferred
The capital gains tax which would have been paid on the sale of the real property is not paid but is deferred to be paid at a later time when the property traded for is sold in a non-exchange sale.

Property Held for use in a Trade or Business
Any real property used by a taxpayer in its business. This could be an office building, warehouse, ranch, shop, garage, farm, etc.

Investment Property
This is real estate purchased to produce an investment income or an investment gain on resale. It can include, but is not limited to apartments, a rent house or raw land.

Like-Kind Property
In the exchange world, “like-kind” does NOT mean you must exchange an apartment project (investment property) for another apartment project, or raw land for raw land, it means that you must exchange real estate for real estate. This permits, within the categories of “held for investment” or “used in your trade or business”, the exchange of apartments for land, or office buildings for apartments, etc., as long as the old properties sold and the new properties acquired are either held for investment or used in a trade of business. The property sold and the property acquired do not have to be exactly alike, they just have to be real estate and fall in the category of “held for investment” or “used in your trade or business”.

Relinquished Property
Relinquished Property is the real estate held for investment or use in your trade or business which is sold or “relinquished”. Think of the Relinquished Property as the property being sold and the Replacement Property as the real property being acquired.

Replacement Property
Replacement Property is the real estate acquired by the taxpayer/seller in a 1031 exchange as replacement for the relinquished property.

Exchange Proceeds
The cash received by the Qualified Intermediary through the sale by the taxpayer of the Relinquished Property and any debt paid on the property sold. In order to defer all of the tax on a sale you must spend all of the cash proceeds received or more if you want to and you must borrow the same amount of money or more if you need or want to that was used to pay off any loan or loans on the property sold. You will pay the tax on any cash proceeds not used to buy Replacement Property or any loan paid off in your sale that was not replaced with same or greater payoff amount of loan on the Replacement property.

The 45-Day Rule
You must identify by written notice (signed by you) to your Qualified Intermediary the Replacement Property or Properties (you can identify more than one possible Replacement Property) you want to buy within 45 days after you close the Relinquished Property. Do not count the date of closing; count 45 days after the closing date and that is the end of the “Designation or Identification Period” – the true end, whether it’s a Saturday, Sunday or any legal holiday. Better get this part completed on that date as a minimum. Before that date is better. After that date, your exchange may be disqualified.

The 180 Day Rule
You must close, fund, and acquire (do it all) the Replacement Properties within 180 days after you close the Relinquished Property. Do not count the date of closing; count 180 days after the closing and that’s the “drop-dead” date to completely acquire the Replacement Property – the true end, whether it’s a Saturday, Sunday or any legal holiday. Better complete this part on this day as a minimum. Before that date is better. After that date, your exchange may be disqualified.

Three Property Rule
Try to designate three Replacement Properties or less to purchase, generally, because if you stay with three or less, you don’t have to worry with anything other than being sure it is like-kind property. If you designate four or more, then you must deal with the “200% Rule”.

The 200% Rule
This rule only comes into play if you designate more than three properties as possible Replacement Properties. If you do, add up the “fair market values” of all the properties designated and be sure that this aggregate number is not more than the gross sales price of the Relinquished Properties times 2. If it is more and you don’t fall within the “95% Rule”, your exchange is outside the safe harbor and may fail.

 The 95% Rule
This is an exception to the consequences of violating the 200% Rule, which applies if you violate the “Three Property Rule”. If your sum of the fair market values of more than three Replacement Properties is greater than two times your sales price of the Relinquished Property, you are still “safe” if you acquire 95% in value of these designated properties, which means that you really need to buy all of the Replacement Properties you designated.

Exception to the 180 Day Rule
You don’t get 180 days to complete the exchange if you have to file your Federal income tax return for the year in which your relinquished property sold before the 180th day. If your tax return for the year in which your relinquished property sold is due on April 15th and your 180th day falls in May, you have to complete your acquisition of the replacement property before April 15th even if there are more days left in the 180 day time frame. BUT, if you file an extension to your tax return, then this exception doesn’t apply. Remember to file the extension if you are in this situation.

Direct Deeding
1031 Exchange allow Direct Deeding, making it all much simpler. In previous years, the exchange taxpayer deeded the property to be sold to the Qualified Intermediary who would then deed to the buyer of the Relinquished Property, and the seller of the Replacement Property would deed to the Qualified Intermediary who would deed to the exchange taxpayer. You don’t have to do this anymore. You can deed the Relinquished Property directly to your buyer, and receive the Replacement Property deed direct from the seller.

For more information on 1031 Exchange, please reach out to our Texas Escrow Company team:

Bill Kramer
Executive Chairman
214.855.8850
bkramer@republictitle.com

Carla Janousek
Sr. Vice President, CES®
214.855.8879
cjanousek@republictitle.com

Helen Wooten
Exchange Assistant
214.855.8879
hwooten@republictitle.com

Disclaimer: This information is a summary of some of the common terms involved with 1031 deferred tax exchanges. Do not rely on this summary alone to make an exchange decision, or think that there isn’t much more involved than what is described in these simple definitions. Exchange decisions should be based on conversations with a tax advisor, an accountant, a Qualified Intermediary, and a tax attorney.

Top 5 Reasons to Refinance Your Home Right Now

With interest rates at all-time lows, now is the time to consider refinancing.  Did you know there are title policy discounts available to some homeowners when refinancing?  There is! Here are the top 5 reasons to refi now.

LOW RATES

Mortgage interest rates are at an all time low and are currently averaging at 3.25% but can be as low as 2.5% for some!

SAVE MONEY

Securing a rate 1-2% lower than your current mortgage can save you hundreds of dollars a month.

PAY DOWN / PAY OUT

Alleviate the burden of high interest debt by refinancing your loan with a new, lower rate or shorter term loan to potentially save thousands of dollars over the course of your loan.

AVAILABLE TITLE POLICY CREDITS

If the loan you will be refinancing is a previously insured loan that is less than 4 years old you may be entitled to a 50% credit on the cost of the new title policy. If the loan being paid off is between 4 and 8 years old you may be entitled to a 25% credit on the cost of the new title policy.

REMODEL OR MAJOR ONE-TIME PURCHASE

Take advantage of the equity you have in your home to
take out a home equity loan for that remodel you’ve been
thinking about for years or for a major one-time purchase.

For more information on refinancing, or to discuss your options contact your local lender.  If you have questions about title insurance and fees contact your local Republic Title Office.

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Spotlight On: Texas Escrow Company

If you have real property for sale, which is used in your trade or business, or is held for investment, you may be eligible to defer the capital gains tax when the property is sold by utilizing a deferred 1031 Exchange. In order to receive this tax treatment, you should contact a Qualified Intermediary, like Texas Escrow Company, a subsidiary of Republic Title of Texas, Inc., and complete the documentation necessary to create your exchange before you close the sale of your property.

The property sold needs to be real estate that you have held for investment or used in your trade or business, such as an office building or rent house. Vacation homes for your personal use, or your personal residence, do not qualify for this tax treatment. You should consult your accountant or attorney for advice on the utilization of a 1031 Exchange, especially if your accountant files your income tax return. It is important that the person filing your income tax return agrees that the exchange achieves the tax deferral you want. Your accountant can also estimate the tax payable on your sale so you can evaluate whether you want to do a 1031 Exchange. The 1031 Exchange only defers the capital gains tax (long or short term) on the sale of real property by purchasing replacement real property of an equal or greater value than the property sold.

Using exchange funds to purchase like-kind replacement real property for an investment, or use in your trade or business, and then later selling that replacement property in another 1031 Exchange to purchase other replacement property, will continue to defer the capital gains tax, plus any additional gain that might accrue by virtue of an increased value of the replacement property. In many cases, once you start exchanging real property, you need to continue using 1031 Exchanges to purchase real property if you wish to continue deferring the capital gains tax. When you sell the replacement property without using a 1031 Exchange, capital gains taxes will be due.

We suggest that you review the supplemental Definitions and Rules of a Deferred 1031 Exchange which is written in easy to understand language to familiarize yourself with some of the terms and rules, that are involved in a 1031 Exchange. All the definitions and rules of a deferred 1031 Exchange should be discussed with your tax advisor, accountant, attorney and a Qualified Intermediary before you do any exchange transaction. The rules encompass all kinds of situations and we repeat that it is imperative to consult with your tax advisors and a Qualified Intermediary about the transaction you have in mind before you sell and, in some cases, before you even contract to sell.

For more information on 1031 Exchange, please reach out to our Texas Escrow Company team:

Bill Kramer
Executive Chairman
214.855.8850
bkramer@republictitle.com

Carla Janousek
Sr. Vice President, CES®
214.855.8879
cjanousek@republictitle.com

Helen Wooten
Exchange Assistant
214.855.8879
hwooten@republictitle.com

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Republic Title completes their 100th RON in 2020

Republic Title is proud to announce that we have completed 100 Remote Online eClosings in 2020.

What is a Remote Online eClosing and how does it work? 

Remote Online eClosing takes place…wait for it…online! The signer and the notary need not be in the same room, or even in the same state!

This type of eClosing allows all parties to be remote and perform the closing through videoconference via a webcam. All documents are signed and notarized electronically during the videoconference. This is the most highly regulated type of eClosing, and special commissions are required to electronically notarize documents. Remote online eClosings are very popular and useful for the seller side of the transaction since, in most cases, there are no loan documents involved for the seller.

Republic Title has completed these 100 Remote Online eClosing through eVolve, our newest digital settlement and signing services division, which provides an alternative closing experience for sellers, buyers and real estate agents.  eVolve’s approach is to provide a completely digital real estate closing process from start to finish, through the delivery of title and escrow services by way of secure collaboration and Remote Online eClosings.

eVolve has been operating in the Dallas/Fort Worth, Texas market for the past 12 months and will allow Republic Title to handle digital transactions in every major market in Texas (including Austin, San Antonio and Houston).