Title Insurance Binder – What is it?

title_insurance_binderNot knowing what a title insurance binder is cost me a lot of money early on. When buying a property escrow companies work with title insurance companies, to ensure that the house your buying doesn’t have any liens on it and if it does that they are paid off by the existing owner before he can sell the property.  Your mortgage(s) will show up on the property title report, as well as many other liens.  The trash companies, electrical can but a lien on a property.  Government agencies can also put a lien on your name, this will have to be paid off when you are buying or selling any assets.

Title Insurance policies can vary a little bit, but they charge by the amount of your policy.  In California it is typical that the seller will pay for the new buyers title insurance.  When you are buying a property you can request a binder policy.  They charge a 10% premium for this, but you can re-use your title insurance once over the next two years.  When you go to sell the property you only have to pay the difference between the old policy amount and new policy amount.

Example:

If you bought a property for $100,000 and your title insurance policy is 0.50 cents per thousand dollars, you would pay $500 for title insurance.  If you bought a binder you would pay an extra $50 for title insurance.

Now when you go to sell the property for $200,000.  You can use any escrow office you want, but they have to use the same Title Insurance company as your purchase.  Your escrow officer would call the Title Insurance company and ask to instate a binder policy.  The charges would be for $200,000 – $100,000 = $100,000.  So when you sell you should only have to pay $500 for Title Insurance versus the full $200,000.  So you would save $450 on this transaction.

It’s not a lot of money, but every dollar saved goes straight to the bottom line.  I screwed this up on a $205,000 purchase and a 297,000 sale costing me almost $1,000 extra!

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