Buying a home is an exciting time for most people, but it can also be confusing and full of unfamiliar terminology. The list of specialized terms related to the purchase of real estate seems endless, so here we will focus on some of the more common terms used specifically in connection with the purchase of title insurance.
The Basics: What is Title Insurance?
To begin, let’s define title insurance itself. In its most basic form, it is a loss prevention insurance policy that protects against legal defects in title that occurred prior to purchase. Generally, two policies are issued. An “Owner’s Policy” covers the homeowner and a “Lender’s Policy”, sometimes called mortgage insurance, covers the mortgage lender.
You also can’t buy title insurance anywhere. You will need to purchase your policy from an authorized agency. Often your bank or mortgage lender will recommend a title insurance agency, but as a buyer, the choice of which company to use is yours.
Other terms to know
“HIGH” is a term you’ll hear a lot when shopping for title insurance. ALTA is the American Land Title Association; the leading trade association for title insurers. ALTA policies are widely used in the United States and are preferred by many lenders. ALTA Residential and ALTA Homeowner’s policies are the two most widely used policies in residential property transactions.
Escrow is a term with many different meanings. When it comes to title insurance, escrow refers to the funds you provided as collateral when you made the initial offer on the property. These funds have been deposited in a special account by the escrow holder, often a title insurance company, and will be released once all obligations related to the purchase of the property have been met. This usually happens at the closing of the property, which is the final meeting; the meeting at which ownership of the property is transferred.
Title Report Terms
One of the main duties of the title agency is to conduct a title search, which is a thorough check of public records to ensure that the property is legally available for sale. Once this is complete you will receive a title report. The report will contain the title search results and you may find terms that you are not familiar with. A Summary or Title Summary, for example, is simply a document that shows the complete ownership history of a property. This will include a list of all previous owners, mortgages, and liens. This differs from a Deed, which is a legal document that describes the property based on a formal survey, maps, and measured distances. The deed only lists the current owner of the property.
You may find that the property you are interested in has liens or encumbrances against it. A Lien is a legal interest in land, which can affect its value. Liens can take the form of easements, zoning ordinances, claims, unpaid taxes, or restrictive covenants. Liens do not restrict the sale of the property. A lien is a financial claim to property. They can take the form of mortgages, mechanical or contractor liens, or court judgments. Bonds generally must be paid before a mortgage lender will allow the sale of the property to proceed.
This is just a brief explanation of some of the many terms used in real estate transactions today. For more detailed information and if you have specific questions or concerns, you should consult a qualified local real estate title agent.
