Title and Insurance

Title and insurance

• Ensures the title has no unexpected encumbrances/ clouds so the lender may make an informed lending decision

  • Lien priority is determined by recording date

  • Paid at closing or withheld from proceeds

  • Regulated by HUD and state agencies

Lenders title

• Benefits the lender only

• Follows the loan, not the home

• needed on all transactions (refinance and purchase)

Owners title

• Benefits the borrower

• Follows the home, not the loan

• Only available at time of home purchase (conveyance)

• Optional, but not encouraged

Title Abstract

Detected report of chain or title for a specified property

Title commitment

Outlines of terms for establishing the title insurance coverage

Title bender

• interim title policy (temporary coverage; typically 2 or less years of coverages)

• Used in property flips or situations that the borrower intends to keep property for only a short period of time

Title endorsements

Allows for customizing of policy (such as considerations of easements or additional coverages)

Personal property

Transitory/ not permanently affixed to the ground

Real property

• Permanently affixed to the ground/ can’t be moved

  • records maintained at local level (city, country, municipality)

Mobile/manufactured homes

• If permanently affixed to the ground, they are considered real property

• If not permanently affixed, they are considered personal property

Lien Priority

• Liens are claims against property to secure a debt

• Lien priority is determined by filing date in most cases

  • Exceptions include:

  • Government Liens

    • Always take 1st priority

    • taxes and special assessments

  • Mechanics liens

    • Based on date of related work

  • Subordination agreements

    • Keeps a lien that was in subordinate position in the same position when the 1st is refinanced

Deed of trust

• 3-party security instrument, used in the title theory states

  • Beneficiary

    • Lender

    • Benefits from sale in event of default/ foreclosure

  • Truster/granter

    • Borrower

    • borrows funds and promises to repay beneficiary over outlined terms

    • holds equitable title to property

    • Grants trustee authority to sell property to satisfy debt in event of default (non-judicial foreclosure)

  • Trustee

    • 3rd party, usually title company or attorney

    • holds legal title to property until debt is repaid

    • When debt is satisfied, legal title is returned to borrower (reconveyence)

Mortgages

2-party security instrument, used in lien theory states

• Mortgagee

  • Lender

  • Places lien against property to secure interest

  • must proceed with judicial foreclosure in event of default (unless power-of-sale clause is included)

  • Sends lien release to borrower when debt is satisfied (Defeasance)

• Mortgagor

  • Borrower

  • Retains both legal and equitable title when debt is owed

Security instrument

• Mortgage

• Deed of trust

• Security instruments are the only connection between real property and the note

  • The note/promissory note does not contain any reference to the legal description of the property

  • legal descriptions are only on the security instrument

• Deeds of trust or mortgages connects a debt to a property

• deeds or warranty deeds indicate who has ownership interest in a property

Encumbrance

Something that prevents the conveyance of a property

• May be:

  • Illegal or legal

  • Physical or financial

  • voluntary or involuntary

• Legal, voluntary, and financial

  • Mortgages

  • HELOCs

  • Home eq loans

  • Home improvement loans

  • Solar/energy efficient liens

• Legal, involuntary, and physical

  • Public/private partnerships

    • Sidewalk

  • Shared driveways

  • easements

    • access for utility meters, fire hydrants, power/ cable lines, land locks, etc

Land locks

• Occur when there is no access to a property through public areas

  • This example shows a driveway which cuts through a neighboring yard because there is no way to publicly access your property

• Illegal, involuntary, and physical

  • Encroachments

    • Boundary disputes

    • fences over property lines

    • unwanted trees/foliage over property lines

Hazard insurance (HOI)

• Protects the collateral from loss due to damage from fire and other hazards

• required on all properties with a mortgage debt owed

  • Required coverage is the lesser of the replacement value or loan amount

• Loss-payee clause protects the lenders interest in the property

  • ensures the borrower will repair any damage in the event of a claim

  • check to cover cost of repairs comes in the names of the borrower and lender

• Forced-placed insurance will be imposed if a borrower does not maintain the minimum required coverages on the property

  • 2 notices are required prior to imposing forced-placed coverage

    • 1st notice must be 45 days prior to placement

    • 2nd notice must be after 1st and prior to imposing coverage

  • Only covers lender against loss

  • typically much more expensive

  • Lender may only charge if they have made reasonable efforts to determine that the borrower has not maintained coverage

  • any overlap in coverage must be refunded to the borrower after they have provided proof of coverage

Flood insurance

• The national flood insurance Act of 1968 and the flood disaster protections act of 1973 established regulations to help facilities consume access to affordable flood insurance

  • The federal Emergency Management Agency (FEMA) implemented the national flood insurances program (NFIP) to decrease the socioeconomic impact flooding causes and offer affordable flood insurance to consumer

• FEMA reviews the 100-year flood history of a region and determines if there is a 1% or greater likelihood the area will flood again at any given time

  • these are designated as special flood hazard areas (SFHAs) on the flood boundary and floodways maps (FBFMs)

  • Appraisers check the FBFMs and add any applicable flood zone designation to the appraisal report

• Flood insurance must cover the lesser of 100% of the the replacement value or the unpaid loan balance, not to exceed $250,000

• Properties located in flood zones A or V require flood insurance as long as debt is owed against the home

  • Flood zones are federally protected areas

    • Peace up = V

    • A-town down = A

  • Zones B, C, and X have optional coverage

    • Less than 1% likelihood of flooding

  • Zone D has not been analyzed

  • Only flood zones A and V are needed for safe (because they are always vulnerable to flooding)

Mortgage insurance

two types of mortgage insurance

• MIP (mortgage insurance premium)

• PMI (private mortgage insurance)

MIP is only on FHA loans

• Both up-front (UFMIP) and annual MIP are required on all FHA loans

  • annual premiums are paid monthly and included in the escrow payment

  • amount is determined based on term length and down payment

  • borrowers will pay annual MIP for 11 years or the full life of the loan

    • 3.55%-9.99% down - MIP for life of loan

    • 10% or more down - MIP for 11 years

• Private mortgage insurance is only required on certain conventional loans

  • LTV above 80% at consummation

  • HPA applies

  • automatically terminates at 78% if the loan is in good standing

    • Based on original amortization and payment schedule

  • May be requested (qualified written request) at 80% LTV

  • Allows borrowers to obtain a conventional loan without having 20% saved