Chapter 21 — Key Takeaways

Title and Insurance: Title Search, Title Insurance, Homeowners Insurance, and Clearing Defects

The core claims

  1. Title is a bundle of rights, not a document. A deed conveys it, possession does not prove it, and a title report is only a summary of what somebody remembered to record.

  2. A title commitment is a to-do list wearing a disguise. Three schedules, three different jobs. A = what is insured, for whom, how much, and who owns it now. B-I = what must be done before a policy issues. B-II = what the policy will never cover.

  3. Read it the day it arrives and sort it by owner. Almost nothing on Schedule B-I is the loan officer's to fix. Two things are: verifying Schedule A against your loan, and the insurance. The rest is tracking — and tracking is the difference between eleven days and thirty.

  4. Priority is by recording date and time. First in time, first in right — with statutory exceptions for property taxes, mechanic's liens that relate back to the start of work, and some association assessment liens, plus contractual rearrangement by subordination. This is why a first lien is what the investor is actually buying.

  5. A deed does not clear recorded claims. A prior owner's unreleased mechanic's lien survives every conveyance in between and becomes your borrower's problem, because it attaches to the land.

  6. A cloud does not have to be valid to be a cloud. The record is what the record says. Only a recorded instrument clears a recorded claim — not a phone call, not a receipt, not a letter.

  7. The lender's policy does nothing for the borrower. It insures the lender, for the loan amount, declining with the balance. The owner's policy insures the buyer, for the purchase price, without declining, for as long as they or their heirs hold an interest. The borrower pays for both and most of them do not know the difference until somebody tells them.

  8. Title insurance is retrospective; homeowners insurance is prospective. One premium, no renewal, covering defects that already exist. That is why it is structurally different from every other insurance in the file.

  9. A quote is not a binder. A binder is coverage in force. In hardening markets the gap between the two lands in the last two weeks and moves the payment, the ratios, and the cash to close.

  10. Dwelling coverage is measured against the cost to rebuild, not the price. Land does not burn. The lender generally requires the lesser of the unpaid principal balance or 100% of insurable replacement cost, on a replacement cost policy — verify your investor's wording.

  11. The mortgagee clause must be exactly right. Exact legal name, address, loan number. A wrong one produces a lapse and a force-placed policy eighteen months after you have forgotten the file.

  12. Flood determination is mandatory, and the map can change under a closed loan. Improvements in a Special Flood Hazard Area require flood insurance for the term of the loan. Life-of-loan tracking means a borrower outside the zone today can be required to insure in year seven.

  13. A condominium can fail for reasons that have nothing to do with the borrower. Master policy coverage, deductible caps, fidelity coverage, and structural/deferred-maintenance standards are the association's to fix, on the association's schedule.

The rules of thumb
Order title and appraisal the same day the day the contract is executed and authorization is in hand
Read the commitment the morning it arrives it is the cheapest day in the file to act
Check Schedule A against your loan amounts, estate, vesting, legal description
Priority first in time, first in right — unless a statute says otherwise
Only a recorded instrument clears a recorded claim ask "has the title company updated the commitment?" not "can you send me the release?"
Dwelling coverage lesser of unpaid principal balance or 100% of insurable replacement cost
Binder in the file the week of the conditional approval, not the week of closing
Condo project docs ordered day one, read by you, not filed unread

The numbers from this chapter
Linden Street lender's title insurance \$1,150.00
Owner's title insurance (optional — purchased) \$875.00
Settlement fee / recording / survey / pest \$595.00 / \$212.00 / \$450.00 / \$125.00
Title and settlement subtotal \$3,407.00 — 35.05% of \$9,720.25 in closing costs
Homeowners insurance \$1,560.00/yr = **\$130.00/month**
Paid at closing 12 months \$1,560.00 + 3-month deposit \$390.00 = \$1,950.00
Flood determination \$14.00 — outside the SFHA, no flood insurance required
Chapter's share of cash to close \$5,371.00 of \$25,376.34 = 21.17%
Mechanic's lien on Schedule B-II \$14,780.00 claimed, prior owner's contractor, day 19 → cleared day 30
Lock consumed before title was clean 18 of 30 days = 60.0%
Lock extension 0.250 point = \$914.38 for 15 days = **\$60.96 per day**

Key terms

title · chain of title · title search · title commitment · Schedule A · Schedule B-I · Schedule B-II · encumbrance · cloud on title · lien priority · mechanic's lien · title insurance · lender's policy · owner's policy · exception · easement · encroachment · survey · homeowners (hazard) insurance · dwelling coverage · replacement cost · binder · mortgagee clause · flood determination · Special Flood Hazard Area · flood insurance · master policy · HO-6

What you should be able to do Monday morning

Open the next title commitment that lands in your inbox on the day it lands. Verify Schedule A against your loan amount, your contract price, and your seller's name. List every Schedule B-I requirement with the role that owns it next to it, and send one email per owner before lunch. Then open the insurance file and answer three questions: is there a binder or only a quote, is Coverage A on a replacement cost basis, and is the mortgagee clause letter-for-letter correct.

That is roughly twenty minutes of work, on a day when nothing is on fire, and it is the difference between a file that closes on the contract date and one that buys a lock extension at sixty-one dollars a day.