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 encouraged

Documents

• Title abstract

  • Detected report of chain of 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)

Property types

• Personal property

  • Transitory/ not permanently affixed to the ground

  • Also known as chattel or moveable property

• Real property

  • Permanently affixed to the ground/ cant 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 takes priority over all liens

    • 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

Deeds 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 property

• May be

  • illegal or legal

  • Physical or financial

  • voluntary or involuntary

• legal, voluntary, and financial

  • Mortgages

  • HELOCs

  • Home equity loans

  • home improvement loans

  • Solar/ energy efficient leans

• Legal, involuntary, and financial

  • Tax liens

  • judgements

  • attachments

  • mechanics 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

• Land locks occur when there is no access to a property through public areas

  • This example shows a driveway which cuts through a neighboring years 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 or 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 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/types

• Two types of mortgage insurance

  • MIP (mortgage insurance premium)

  • PMI (private mortgage insurance)

• They are not the same thing and the answer to a question could be different depending on if the question or answers say PMI or MIP
  

• Mortgage insurance Premium 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

    • 3.5% - 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 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