Q: What is Title Insurance?
A: The purchase of a home is probably the single largest investment you’ll make in your lifetime. It is only prudent that you want to safeguard your rights and investment. Title insurance assures that your rights and interests to the property are as expected, that the transfer of ownership is smoothly completed and that you receive protection from future claims against the property. It is the most effective, most accepted and least expensive way to protect your ownership rights.
Q: What protection does title insurance provide?
A: A title insurance policy insures against any losses suffered due to this sort of legal action, up to the face amount of the policy, and pays any and all legal costs incurred defending your rights against the claim. Depending on the size and extent of the claim, this can add up to thousands of dollars you would otherwise have to cover on your own.
Q: What sort of claims does a title insurance policy cover against?
A: Title insurance covers any undiscovered claims that may threaten your ownership of real estate. If such an undiscovered claim did arise, it would be resolved or you will be reimbursed just as your title policy states.
Most common hidden risks or undiscovered claims covered include but are not limited to:
False impersonation of the true owner of the property
Forged deed, releases or wills and instruments executed under invalid or expired power of attorney
Undisclosed or missing heirs, including mistakes in recording legal documents
Misinterpretations of wills and deeds by persons of unsound mind
Deeds by minors
Deeds by persons supposedly single, but in fact married
Fraud
Liens for unpaid estate, inheritance, income or gift taxes
Q: What’s at stake if I opt against a policy?
A: In the most extreme case, a successful claim against your title could result in the loss of your property, without any monetary compensation to you. In other words, you could wind up having to continue paying your mortgage, even though the property is no longer yours.
Q: My lender had me buy title insurance for them when I took out my mortgage. Does their policy cover me too?
A: No. The policy your lender had you buy is known as a lender’s policy. It protects the lender’s investment, not yours. You will need to purchase what is known as an owner’s policy to cover yourself. The cost of the policy depends on the value of your home but should be minimal. Also, unlike homeowner’s insurance, title insurance is a one-time purchase. A single premium covers you and your heirs for as long as you own the property.
Q: What are the most common ways to take title and which one is right for me?
A: Tenants in Common, Joint Tenants with full rights of Survivorship and Tenants by the Entireties
Tenants in Common
In Florida, this is the default tenancy for those taking title together who are not married to each other and who have not specified another form of co-tenancy. A form of ownership whereby each tenant holds an undivided interest in property, equal or unequal, derived from the same or different instruments at same or different times.
Joint Tenants with full rights of Survivorship
A form of ownership where each tenant holds an equal, undivided interest in the title to real property. Upon the death of one joint tenant, his or her interest is equally divided between the remaining joint tenants, until full title vests, as a tenancy in severalty, in the last survivor.
Tenants by the Entireties
In Florida, this is the default tenancy for married couples who do not otherwise expressly specify another type of co-tenancy. A form of legal fiction which recognizes husband and wife as a single marital unit (one person). Upon death, title automatically passes, outside of probate, to the surviving spouse.
Florida Study Manual for Title Insurance, 5th Edition by Karen E. Koogler
Q: What is an Escrow?
A: A legal document, money, stock or other property delivered by the grantor into the hands of an escrow officer and is to be held by the escrow officer until the happening of a contingency or performance of a condition, and then delivered by the escrow officer to the grantee.
Florida Study Manual for Title Insurance, 5th Edition by Karen E. Koogler
Q: What is an Escrow agreement?
A: An agreement between buyer, seller and escrow officer setting forth rights and responsibilities of all parties. A real estate contract for purchase and sale is one form of escrow agreement, as it binds two parties with an escrow officer acting as an intermediary for holding documents and monies associated with the transaction.
Florida Study Manual for Title Insurance, 5th Edition by Karen E. Koogler
Click here to get Title One’s Earnest Money Escrow Agreement Form.
Q: What is a 1031 Exchange?
A: A 1031 Exchange, also known as a Like Kind Exchange, is a transaction under United States law which specifies under section 1031 of the Internal Revenue Code,
26 U.S.C. § 1031the following:
“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.”
This allows taxpayers to defer all of the capital gains taxes resulting from the sale of investment property, when they use a Qualified Intermediary (should be a corporation that is in the full-time business of facilitating 1031 exchanges), follow the IRS guidelines, and use the proceeds of the sale to buy more investment property within 180 days of their sale. In order to obtain full benefit, the replacement property must be of equal or greater value, with equal or greater debt, unless the taxpayer adds cash to the deal to replace debt instead, and all of the proceeds from the relinquished property must be used to acquire the replacement property. The taxpayer must have assigned his interest in the relinquished property to a Qualified Intermediary prior to the close of the sale, so that the taxpayer has lost control of the funds before he has any opportunity to obtain them.
At the close of the relinquished property sale, the proceeds are sent by the closing agent to the Qualified Intermediary, who holds the funds until such time as the transaction pertaining to the replacement property is ready to close. Then the proceeds from the sale of the relinquished property are deposited by the Qualified Intermediary to purchase the replacement property, which is then delivered to the taxpayer, all without the taxpayer ever having “constructive receipt” of the funds.
The prevailing idea behind 1031 Exchange is that since the taxpayer is merely exchanging one property for another property(ies) of “like-kind” there is nothing received by the taxpayer that can be used to pay taxes with. All the gain is still locked up in real estate and so no gain or loss can be claimed.