Title insurance is often one of the largest components of the closing costs incurred by a borrower in a home purchase or a refinance. Thus, any cost savings on that item can save the borrower literally hundreds of dollars. By asking their settlement attorney about qualifying for "reissue" or "substitution" rates, borrowers can sometimes obtain title insurance premium discounts of as much as 70%.

Knowing the right questions to ask and a having a basic understanding of Title Insurance can go a long way to reducing closing costs and making the average borrower a savvy consumer of title insurance products. To that end, this article answers the following questions: What is title insurance? Why should I buy an Owner's Policy? What does it cover? What is the difference between an Owner's Policy and an Lender's Policy? How can I qualify for discounted title insurance premiums when purchasing or refinancing my property?

What is Title Insurance?*

A Standard Coverage Policy covers the insured (which can be owner and/or just lender) against liability for the following types of occurrences: forgery and impersonation; lack of competency, capacity or legal authority of a party; deed not joined in by a necessary party (co-owner, heir, spouse, corporate officer, or business partner); undisclosed (but recorded) prior mortgage or lien; undisclosed (but recorded) easement or use restriction; erroneous or inadequate legal descriptions; lack of a right of access; and deed not properly recorded.

An Extended Coverage policy may be requested to protect against such additional defects as: off-record matters, such as claims for adverse possession or prescriptive easement; deed to land with buildings encroaching on land of another; incorrect survey; silent (off-record) liens (such as mechanics' or estate tax liens); and pre-existing violations of subdivision laws, zoning ordinances or CC&R's.

Certain title insurance companies in certain parts of the country (including, the Washington, DC. area) have now also come up with Extensive Coverage Policies which also cover: post-policy forgery; forced removal of improvements due to lack of building permit (subject to deductible); post-policy construction of improvements by a neighbor onto insured land; and location and dimensions of insured land (survey not required). However, before a title insurance company will issue any title policy, it conducts an extensive search of the recorded title to the property. In the Washington, D.C. area a full title search typically searches the title back 60 years. In addition to the land records, other records such as court judgments, bankruptcies, divorces, probate, tax sale, water and sewer and a new or verified survey are examined as well.

What is an Owner's Policy of Title Insurance?

An owner's title policy is an insurance policy written for the benefit of the owner. The important thing to remember is that you only pay once, then the coverage continues in effect for so long as you have an interest in covered property. If you should die, the coverage automatically continues for the benefit of your heirs. If you sell your property, giving warranties of title to your buyer, your coverage continues. Likewise, if a buyer gives you a mortgage to finance a purchase of covered property from you, your coverage continues to protect your security interest in the property.

What is a Lender's Policy of Title Insurance?

The lender's title policy covers only the lender and only up to amount of its loan, which is usually not the full property value. In the event of an adverse claim, the lender would ordinarily not be concerned unless its loan became non-performing and the claim threatened the lender's ability to foreclose and recover its principal and interest. And, in the event of a claim there is no provision for payment of legal expenses for an uninsured party. When a loan policy is being issued, the small additional expense of an owner's policy is a bargain.

How can I save money by asking for a "Reissue" or "Substitute Rate?"

A reissue rate is available when the borrower/purchaser produces to the settlement attorney when placing the title order: an owner's title policy covering the subject property, issued within the previous 10 years. When those conditions are met, discounts of up to 40% of the new title insurance premium may be obtained. These discounts apply to both owner's policies, as in the case of a purchase, and lender's policies, as in the case of a refinance transaction. The actual discount will vary depending upon the age of the prior policy, the amount of the prior policy and the amount of the proposed new policy. A substitution rate is available when a borrower produces a lender's title policy, insuring the same lender that the borrower is now borrowing from, written by the same title insurance company now being used and which was issued within the previous 10 years. In other words, when a title insurance company is simply substituting a new mortgage granted by the same lender, to the same borrower for the same property, they are willing to offer extensive discounts of up to 70%. The actual discount will vary depending upon the age of the prior policy, the amount of the prior policy and the amount of the proposed new policy.

Asking the right questions can save you money the next time you buy or refinance a home. When refinancing with your existing lender ask them for a copy of your original lender's title insurance policy. When purchasing a home, ask your Realtor or seller for a copy of any existing owner's title insurance policy written within the previous 10 years. When placing a title order, provide your settlement attorney with a complete, legible copy of any prior title policies. Finally, ask your settlement attorney if any discounted title insurance rates are available based on your specific situation.

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