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hOMe BuYers
FROM THE ARIZONA DEPARTMENT OF INSURANCE
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Buying a home is, for many of us, the most substantial, single
investment we’ll ever make and all of us want to make sure we
do it right!
Most homeowners provide for security and safekeeping of their
homes through homeowners insurance – to protect against
hazards such as fire, theft and weather damage, yet title
insurance offers protection to home ownership as well. “Title”
is a collective term used to describe your legal rights to own,
possess, use, control or dispose of your home.
As you know, one of the first steps in purchasing and acquiring
title to your home is to choose a title insurance company to
perform a title search on the property to make sure the title is
free and clear of any unacceptable defects, claims or encum-
brances. A title defect might involve unpaid taxes, liens, an
undisclosed claim from an heir of a previous owner, or perhaps,
just an easement from the local power company to install a
power line on your property.
Your title insurance company will search the history of the
property in the public records and issue a title policy assuring
the condition of the title at the time of your purchase. There are
two types of title insurance policies: a
lender’s
policy (usually
required by the lender to cover the amount of the loan) and
an
owner’s
policy (optional homeowner’s protection for full
property value). Should someone challenge your title (i.e., your
legal rights of ownership), the title insurer must defend that
challenge and pay all associated costs and loss in property value
that might result.
As you prepare to make this important investment, please
remember that Arizona Department of Insurance resources are
available to help you make informed decisions about your title
insurance needs. Please visit our website at www.id.state.az.us.
Christina Urias
Director
Arizona Department of Insurance
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What is title?
Title is a collective term that encompasses your legal rights to
own, possess, use, control or dispose of real property – land.
Title takes into account all previous land ownership, uses and
transfers of land use and ownership. In order to legally transfer
real estate property, you must perform a title search to determine
the title is clear or free of defects or inappropriate encumbrances.
What is a title defect
Or encuMBrance?
A title defect is a problem or omission associated with the
title that impairs your ownership rights to the property. Possible
title defects include errors or omissions in recording deeds, forgery,
confusion caused by similar or identical names, signatures of
minors, mental incompetence, fraud, incorrect marital status,
etc. For example, a title defect could be an undisclosed heir of a
previous owner suddenly appearing to make an ownership
claim on your land.
An encumbrance is a claim made upon the land by someone
other than an alleged landowner. For instance, your local power
company may have an easement – a limited right to use your
property – to install electrical power lines to serve your house
or your neighbor’s. While a utility easement is often an appropriate
encumbrance, other encumbrances may not be acceptable. If you
are borrowing money to purchase your house, your lender will
want assurance that no one else has a claim against your house –
the collateral for your loan. Therefore, your lender will require
clear title – title free of any outstanding defect or unacceptable
encumbrance – before approving the loan and transfer of ownership.
WhY is transferring title tO real
estate different frOM Other
OWnership transfers, such as the
transfer Of title tO a car?
Land is permanent, although land usage can change over time.
A landowner can transfer various rights from the title, such as
mineral, water or utility rights while still maintaining title to the
property. If you are considering a purchase of vacant land, for
example, you should consider its history to determine possible
unacceptable prior usage (i.e., landfill, pollution, etc.). You and
your
lender should search the title for any defects or unacceptable
encumbrances.
What is title insurance?
Title insurance is a contractual obligation between you (and/or
your lender) and the title insurance company, wherein the title
insurer, in exchange for a premium payment, provides protection
(effective as of the date the title insurer issues the policy) against
future losses that might result from a variety of possible title
defects or encumbrances.
WhY cOnsider purchasing
title insurance?
Actually, there are two types of title insurance policies to
consider: a
lender’s
policy (also known as a “loan” policy) and an
owner’s
policy. A
lender’s
policy protects the
lender’s
investment
by paying the mortgage in the event that a title defect voids
the owner/buyer’s title to the property. Typically, a
lender’s
policy
does not represent the full property value and the amount of policy
protection decreases as the mortgage balance decreases over the
life of the loan and terminates when you pay off the mortgage.
An
owner’s
policy protects the landowner/homeowner against
the specific types of claims listed in the policy, usually purchased
to cover the full property value. While lenders generally require
a
lender’s
policy as part of the real estate transaction, an
owner’s
policy is usually optional. An
owner’s
policy protects against any
title loss, which insures the value of the property and lasts as long
as you or your heirs retain an ownership interest in the property.
In addition to title loss coverage under a
lender
or
owner
policy,
a title insurer must also pay for any and all costs associated with
defense against title challenges and, if unsuccessful, the title
insurer must also pay for any reduction in land value as result.
You pay for an
owner’s
policy only once, at the close of escrow;
there are no continuing monthly premiums.
What is a title search?
Part of the cost of title insurance includes a title search, in which
the title insurer conducts a detailed examination of the historical,
public records concerning the property. These records include
deeds, court records, property and name indexes and many
other public documents. The purpose of the search is to verify
the seller’s right to transfer property ownership and to discover
any defects or encumbrances on the title. A title search
should show all title defects and encumbrances as well as
judgments, liens and other restrictions (i.e., unpaid taxes,
unsatisfied mortgages, judgments against the seller, land-use
restrictions, etc.). Remember, the seller’s title policy does not
protect you as a buyer; any of these defects could have occurred
during the seller’s ownership and a new title search will protect
your ownership rights when you acquire the property.
What dOes title insurance cOver?
Title insurance protects you and/or your lender from losses resulting
from claims against your ownership of real estate. It is unique
because it provides coverage for problems or “hidden risks”
(errors, forgeries, unpaid taxes, etc.) that possibly occurred
before you took title to the property, yet can jeopardize your
ownership rights.
Title insurance coverage includes:
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Protection from financial loss (up to the face amount of the
policy) due to covered claims against your title;
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Payment of legal costs to defend against covered claims;
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Payment of successful claims against your title (up to the face
amount of the policy).
Read your title insurance policy carefully and note possible
exclusions and exceptions, which may include:
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An unrecorded title defect you knew about;
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Condemned land;
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Building and zoning ordinance violations;
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Payments required (except for legal access rights) because
your deed failed to provide rights of use to adjacent land,
streets, alleys or waterways;
n
Conveyance of title irregularities arising from a deceased
person’s estate, a bankruptcy estate or trust;
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Restrictive covenants limiting your use of the property;
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Discrepancies, conflicts or shortages in area, boundary lines,
encroachments, protrusions or overlapping improvements;
n
Right of usage claims arising if your property is on or near
a body of water, river or stream; or,
n
Renter or adverse possession claims from “parties in
possession” of all or a portion of your property.
Where can i get title insurance?
You can obtain title insurance from any licensed title insurance
company or its agents operating in Arizona. Competing title
insurers offer different services, costs and fees for title services
and rates may vary between companies. By law, real estate
professionals cannot dictate which title insurer (or title agency)
you must use – so, shop and compare: the choice of title
insurers is yours. The Arizona Department of Insurance suggests
you consider:
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The lender usually requires a
lender’s
policy only for the
amount of the loan, but the buyer should consider an
owner’s
policy covering the full purchase price;
n
Payment of the policy premiums could be an
owner’s
negotiating point in the sale;
n
Make sure the policy effective date matches the escrow
closing date;
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Verify the policy correctly describes the property interests
covered;
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Ask for first-time buyer or other possible discounts –
refinancing or short-term financing rates may be available;
n
You can choose the title insurance company (or title agency) –
you do not have to use the one suggested by the real estate
professional or lender;
n
The Arizona Department of Financial Institutions regulates
escrow activities – call them if you have questions regarding
the closing or escrow transactions at (602) 255-4421.
hOW tO MaKe a title insurance claiM
As soon as you discover any title-related problem that could impair
your ownership rights, contact the title insurance company listed
on your
owner’s
title insurance policy, and have your policy number
available. You should make claims in writing, and include copies
of all relevant documents, such as payment demands and
correspondence relating to the title dispute or claim. Keep copies
of everything for your own personal records.
The title insurer should promptly acknowledge receipt of your
claim and you should expect the title insurance company to accept
or deny your claim in a reasonable amount of time.
The Arizona Department of Insurance regulates title insurance
companies and title insurance agencies authorized to do business
in Arizona. You can file a complaint with the Arizona Department
of Insurance if you feel the title insurer or agency has acted in an
illegal or inappropriate manner.
Janet Napolitano, Governor
Christina Urias, Director
Arizona Department of Insurance
2910 N. 44th Street, Suite 210
Phoenix, Arizona 85018
Phone: (800) 325
-2548
(602) 364
-2499
Fax: (602) 364
-2506
Email: consumers@id.state.az.us
Website: www.id.state.az.us
Other resOurces
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For escrow questions, call the Arizona Department of Financial
Institutions at (602) 255-4421.
For real estate issues, call the Arizona Department of Real Estate
at (602) 468-1414.
For other title insurance questions, visit the American Land Title
Association (ALTA) website at www.alta.org.
The Arizona Department of Insurance is an Equal Employment Opportunity
agency that complies with the Americans with Disabilities Act (ADA) and the
Arizonans with Disabilities Act. Persons with disabilities may request materials
in an alternative format by contacting the ADA Coordinator at (602) 364-3471
and should do so as early as possible to allow reasonable time to make
necessary arrangements.
