The Homeowner’s Quick Reference Guide to Property Title Insurance

Buying a home is both exciting and stressful. For many homeowners, navigating the ins and outs of the process can be overwhelming, particularly if it’s the first time they’re buying a home.

At Primera Title, we work closely with homeowners to help them with every aspect of the transaction, from crafting the initial title commitment through the closing itself. The issue of property title insurance is one we’re familiar with – and we’ve created this reference guide to help you understand what property title insurance is, why it is necessary, and what you need to know to protect yourself.

What is Property Title Insurance?

Stated simply, property title insurance is insurance that protects you and your lender from financial losses related to the property you’re buying, specifically those that might call your ownership of the property into question. When you buy a home, a title company will conduct a title search, which involves looking at any public records to determine if there are encumbrances on the property.

The most common encumbrances are things like property tax liens, mechanics liens, and judgments against the current owner of the home. If you were to buy a property with one of these things in place, you would be responsible for any payments as the new homeowner. Any title claims that show up in the initial public records search must be resolved before the closing.

In Florida, there are two types of title insurance that are relevant to buying a home. The first is owner’s insurance, which protects you in the event of an unexpected encumbrance that arises after the closing. The second is lender’s insurance, which protects your mortgage lender’s interest in your home.

Why Do You Need Title Insurance?

If your title company does a thorough search of public records related to the home you’re buying, you may wonder why you need title insurance at all.

The first reason has to do with human error. There are two ways that a “clean” public record search could come back to haunt you:

  1. The person filing the encumbrance made an error, such as a misspelled name or an incorrect address; or
  2. The public records office entering the paperwork made a mistake entering it into the public record.

In either case, there might be a problem with the title that is not uncovered during the initial search. Even something as simple as entering or not entering a middle initial can change the search results. A responsible title search company will include variations of the owner’s name in their research, but it is still possible to miss something.

The second reason for title insurance is the unexpected and unpredictable title problem. Here are some examples:

  •  A forged will or deed
  • An invalid title transfer, such as one by an underage person or a married person without the consent of their spouse
  • Fraudulent impersonations
  • Undisclosed heirs with a claim to the property
  • Invalid divorces
  • Secret marriages
  • False affidavits
  • Pending lawsuits and judgments

Some of these potential encumbrances sound like the stuff of soap operas, but they do happen sometimes. Title insurance protects you against the worst case scenario of going through a closing and finding out that you don’t have a clear title to your home.

Any federally insured lender in Florida will require lender’s insurance. Owner’s title insurance is not required in Florida, but keep in mind that the lender’s policy will not protect you if an issue with the title of your home arises.

Who Conducts a Property Title Search?

Any member of the public can conduct a property title search. Most commonly, the searches happen at a county level because that is where property taxes are levied and where most encumbrances would be filed. However, a thorough search should look at every level. For example, a state tax lien might be filed with the Secretary of State’s office and not with the County Recorder’s office.

The best option is to have an experienced title company do the search on your behalf. Here are some reasons why you shouldn’t attempt to do a property title search on your own:

  • An experienced title company will understand the ins and outs of the search functions on the relevant public records sites. Some search engines use different protocols and if you don’t understand them, you may end up missing filings that you should find.
  • Likewise, a title company will search variations of the current owner’s name to ensure they have found every outstanding lien or encumbrance.
  • If you hire a professional title company in Florida, you are less likely to run into problems after your closing.

Title searches and title insurance are both things that can protect you and your interest in the home you buy. For that reason, it makes sense to partner with a title company that has the experience to help you gain a clear title to your new home.

How Much Protection Do You Need?

A lot of first-time homebuyers ask us how much title insurance they need. We understand why people ask that question because most insurance policies allow the buyer to choose a coverage level. However, it’s not relevant for title insurance because the premiums for title insurance are based upon the value of the property. In other words, there isn’t an option to choose a coverage level because that’s determined by the purchase price of the property you’re buying.

How Much Does Title Insurance Cost in Florida?

Title insurance costs are regulated in Florida, meaning that the cost is determined by a state-level board. Here’s how the costs break down:

  • For a purchase price of $100,000 or less, the rate is $5.75 per $1,000 of the purchase price. That means for a $100,000 purchase, the insurance premium would be $575.
  • For purchase prices over $100,000, the rate for each $1,000 drops to $5.00. That means that for a $250,000 purchase price, the title insurance premium would total $1,325.

Are You Required to Buy Title Insurance from the Company Your Lender Recommends?

Most lenders have preferred insurance carriers they recommend to borrowers. However, you are within your rights to opt for a different company if you prefer. Your lender cannot dictate which carrier you use.

In some cases, it may be that the lender’s preference is also the best choice for you. It’s also possible that you’ll get recommendations from your real estate agent or title agent. The same rule applies. You can take their suggestion if you choose, but it’s never a bad idea to do your own research before settling on a company.

Who Pays for Property Title Insurance?

Under normal circumstances, the only person who would be liable to pay for insurance would be the person or entity covered under the policy. That’s not always the case with title insurance.

In approximately 60% of the counties in Florida, the party selling a home is responsible for buying the owner’s title insurance. The reason is that the seller is far more likely than the buyer to be responsible for any encumbrances of the property that show up after the closing. 

However, in some Florida counties, the buyer is responsible for paying for the owner’s title insurance. These counties include Sarasota, Collier, Miami-Dade, and Broward, among others. In some places, the seller buys the owner’s policy while the buyer pays for the lender’s policy. An experienced title company will be able to tell you whether you are responsible for buying property title insurance on your own behalf or your lender’s.

Title Insurance Terminology to Know

Like every kind of insurance, property title insurance has its own vocabulary of specialized terms. Here are some terms you should know:

  • Abstract of Title – A thorough title search that goes back to the earliest recorded public records for the property and includes physical copies of any recorded instruments.
  • Clear Title – A title that is free from any defects or encumbrances that might affect the buyer.
  • Cloud on Title – A cloud on a title is an implication or indication that there might be a claim that would impact the title to a property in the future.
  • Easement – A right to use someone else’s property for a specific purpose. It does not grant an interest in a property, only the use of it.
  • Eminent Domain – The constitutional taking of private property by the government for public use, in return for compensation of the owner of the property.
  • Lis Pendens – A legal term indicating that a suit has been filed concerning real property.
  • Primary Title Services – Services provided by a title company consisting of examining title search records, eliminating encumbrances, finalizing the insurability of a property, and preparing the title commitment and insurance policy.
  • Property Encroachment – A situation when one owner’s property runs into another person’s property. Encroachments may be natural (bushes, shrubs and trees) or man-made (decks, fences, walls and sheds).
  • Related Title ServicesClosing services sometimes provided by title companies, including preparation of closing documents, conducting the closing, and disbursing closing funds.
  • Restrictive Covenants – An agreement or contract that restricts, regulates or limits the use of property with the goal of preserving adjoining property. (For example, if you bought a home next to a historical monument, a restrictive covenant might be in place.)
  • Simple Escrow – A closing where title insurance is not issued or required.
  • Title Commitment – This is the legal term for a title insurance binder, which is a temporary insurance policy issued as a preliminary step.
  • Title Defects – A title defect is any legal issue that arises due to adverse or conflicting interests related to ownership of a property and authentication of the title to it. The most likely cause of a title defect is an improperly recorded ownership or transfer of ownership.
  • Title Search – A title search is the process of gathering title information from public records. It provides a list of all previous and current official records that might affect the title of the property being purchased.
  • Writ of Interpleader – A writ of interpleader is an official court order instructing a title company about the disbursement of funds held in escrow, usually when there is a question about rightful ownership.

Your Florida title company should be able to advise you on these terms, but you’ll be better off if you have a basic understanding of them before you buy a property.

Tips for Choosing a Florida Title Company

It’s important to protect yourself when you are buying a home. Choosing the best title company is a must. Here are some things to keep in mind as you choose the right Florida title company for your closing.

  1. Professional experience. You should choose a title company where the owners have years of experience with Florida title searches and title insurance. Keep in mind that a new company may still have the experience you need. The key is to look at the owners’ experience and reputation.
  2. Related title services. There are some title companies that provide only title searches and abstracts of title while others provide an array of related services. It can help you save money if you choose a title company that can:
    1. Craft initial title commitments
    2. Review and clear title defects
    3. Issue the title insurance policy
    4. Coordinate escrow handling
    5. Conduct the real estate closing
  3. Licensing. You should do a search to ensure that the title company you choose is licensed to do business in the state of Florida.
  4. Rates. Title companies’ rates can vary greatly from company to company. It’s always a good idea to do some comparison shopping before you choose a title company to represent your interests.

Keep in mind that choosing a company that can handle your escrow and closing will cost more than a simple title search. However, it can save you money in the long run when compared to the cost of hiring an attorney to represent you.

Title insurance is necessary to protect your rights to your new home. The key to a smooth closing – and a clear title to the property – is partnering with an experienced and reliable Florida title company.

At Primera Title, we have more than 30 years of experience providing title and escrow services in Florida. Click here to get an estimate for your title insurance needs.