Shopping for title insurance may not be the most thrilling step in buying a house, but it is one of the most important.
Before you can own a home, or “take title” to a property, most lenders will require a title search of public property records to make sure there aren’t any issues in transferring the property into your name.
For example, title issues can crop up due to liens on the property (say, from a contractor who did work on the house but wasn’t paid), unfulfilled financial obligations such as unpaid taxes, or claims of ownership from a long-lost heir. In such cases, a home seller may not have the legal right to transfer ownership of the property.
To protect against any financial loss, two types of title insurance exist: lender’s title insurance and owner’s title insurance. The lender’s title insurance policy pays for the expense of researching a claim and any court costs incurred as a result of any disputes they uncover.
Owner’s title insurance, meanwhile, protects you as the homeowner during any future disputes over ownership of the property.
Lenders require borrowers to purchase lender’s title insurance. Owner’s title insurance, however, is optional—but, given the protections it provides, buying it is a smart move. (Generally, home buyers use the same title insurance company to purchase both policies.)
Unlike homeowner insurance, title insurance is taken care of as a one-time payment that’s made when (or shortly before) you close on your house.
Now that we’ve got the basics of title insurance squared away, let’s look at some of the more surprising questions you probably never thought to ask a title insurance provider but totally should. After all, as the home buyer, it’s your choice which title company you decide to use.
1. What are your title insurance rates?
Although this might seem like an obvious question, some home buyers forget to ask it. And that can be a big mistake. Why? Because even though the average cost of title insurance is around $1,000 per policy—which covers all upfront work and ongoing legal and loss coverage—the price can vary widely, depending on where you live and the price of your home.
In many states, including Texas and Florida, title insurance premiums are set by the state, meaning that you’ll pay exactly the same amount no matter what title insurance company you choose.
However, some states, like California and New Mexico, do not regulate title insurance fees at all, and rates can vary widely from one title agency to another, says Rafael Castellanos, a managing partner at Expert Title Insurance Agency in New York City. If rates aren’t preset by the state, they’re negotiable.
It’s advisable that all home buyers find out what a title insurance company’s rates are before they choose an insurance provider.
2. What has been your most challenging title search, and how did you handle it?
Some title searches are easier to clear than others. While there’s no telling how difficult yours will be, you want a title company that can handle complicated problems.
“There are issues that we run into on residential properties that can be complex, and we have to go to great lengths to resolve them,” says Tim Evans, owner of Evans Title Agency in Troy, OH.
Ask how a title company solved their most challenging title search, and you’ll gain some valuable insight—and some assurance that the company will be able to troubleshoot issues during your title search if any should arise.
3. How much experience does your title insurance attorney have?
A title company’s attorney is the person who is going to determine whether you can legally take title of the property and receive title insurance. Using a title company with a seasoned attorney, therefore, is crucial.
However, “in the early 2000s, it was very common to see people forming their own title insurance agencies after just a few months,” Evans says. “Though that’s less common today, you can still run into title attorneys who have very little experience.”
4. What’s your company’s ratio of title claims to customers?
Because title searches can be complicated, claims are an inherent part of the business. However, some title companies are more “liberal” than others, Castellanos says, with respect to whom they will—and whom they won’t—issue title insurance.
“Some title companies pay lots of claims, which can put a lot of stress on their clients,” says Castellanos. “You want a title company that is incredibly careful and conservative.”
So, how many title claims are too many? Title insurance claim rates are approximately 5%, according to industry estimates.
As a result, here’s a good guideline: If a title company has had a lot of title claims relative to the volume of their business—say, 1 out of every 10 customers—you’ll want to continue your search.
5. How long does it take for you to complete a title search, on average?
Depending on the terms of your home sales contract, you may be under a tight deadline to reach settlement, warns Kimberly Sands, a real estate broker in Carolina Beach, NC.
Of course, you won’t know that until you actually make an offer on a house. But, since it’s a possibility, you’ll want to find a title company that can conduct a title search in a timely manner, Sands says.
Typically, the whole process takes about two weeks. If a title company says that it will take significantly longer to complete a title search, using that company could force you to delay closing, which could potentially cause your whole home purchase to collapse.
6. Do you belong to any professional associations?
While being a member of a professional association certainly doesn’t guarantee that a title company is good, title agencies that belong to industry groups are often held to a higher standard, says Evans.
Organizations like the American Land Title Association (ALTA) also offer their members unique education programs, business tools, and industry certifications that will serve clients well. Moreover, membership in an industry group adds a layer of credibility for an insurance provider.
The bottom line
Title insurance can be confusing for home buyers, but it’s an essential protection of homeownership. So, in addition to asking the questions above, take time to read online reviews and talk to your real estate agent before picking your title insurance provider.