Real Estate Mortgage Components with Title Insurance

Real Estate Mortgage Components with Title Insurance

A typical purchase press for real estate property through mortgage loan consists of the following elements:

  • Real Estate Property, land, home, building, complex
  • Real estate current owner
  • Real estate expected owner
  • Real estate agent
  • Real estate appraiser
  • Real estate mortgage
  • Real estate mortgage provider
  • Real estate current insurance
  • Real estate gap insurance
  • Real estate new one time insurance
  • Real estate recurring insurance 
  • Real estate previous obligations and liabilities

Corner stone of real estate property sale and purchase process is the real estate property existence, free of liabilities, encumbrances, liens and defects.
Some brokers are excellent guiding the buyer to great deal free of obligations, while some others are mediocre listing anything and selling without effective due diligence process to protect buyer from bad choices.

Some Failures of Due Diligence Process Acquiring new Real Estate

  • Ignore appointing lawyer to verify documents and contract
  • Non-visible defects in the property, like water leakage, basement cracks, manual electricity cabling by non-professionals
  • Bypass obtaining initial insurance quote with Risk Management and Risk Mitigation consideration
  • Forget about receiving and reviewing as-built plans and specs
  • Blocking eyes to consider existing local environmental conditions
  • Ignore to review energy and water usage history and comparing it to normal average consumption studies
  • Avoiding review for potential block of access to property based on new local development plans

“Title Insurance” is one of the most effective instruments designed by insurance providers to protect buyers and lenders from such mistakes.

Due Diligence for Fraud

Although many people are naturally examining real estate property before signing a purchase agreement, many of them can become a victim of fraud. Professional fraudsters are effective making a sale deal then disappear leaving the client in heartbreak.
Fraud is not just an unavailable real estate property or counterfeited title deed certificate, it can be a lien on the property, some old hidden inheritance issue that is completely not known to anybody other than the fraudster at the time of sale.
The simplest fraud cases are undisclosed problems in the property, hiding defects and liens.
Professional Insurance brokers and providers are taking care of these issuing while preparing Title Insurance in order to protect the client.

Mortgage Brokers and overvalued appraisals

Several mortgage brokers approach low-budget buyers who cannot afford down payment through structured way to acquire mortgage loan; they raise the value of real estate property to bypass down payment. They will get overvalued appraisal for the real estate property, along with signed fake payment of down payment by the seller in order to get the mortgage loan approved by the bank.
How overvalued appraisal could harm the buyer and mortgage provider:

  • Some lenders require home buyers to secure 10% to 20% of the property value in cash
  • Mortgage broker acquire an appraisal for the property with value of 20% extra above actual real estate value through special sources
  • Mortgage broker secure more than single appraisal as mandated by most of the lenders
  • Mortgage broker convince both parties buyer and sellers to sign fake down payment receipt with 20% of the real estate value
  • Due to imposed requirement by some lenders to make the down payment through a bank account, some mortgage brokers will secure this step as well to make fake payment as genuine transaction
  • Mortgage will be arranged, lender is granting the loan based on such arrangement with 10 years payment terms as minimum
  • Mortgage brokers are doing this on the basis of continuous real estate property value increase on the coming period
  • Two or three years later, new real estate owner is still handling monthly mortgage payment, however the fake 20% and loan interest is still not covered
  • A market downturn, or economic disruption happen suddenly, that forces real estate property value to remain as is or decrease as well
  • New home owner loses his job and stops monthly loan payment
  • Mortgage lender request the property to liquidate it
  • Real estate property value on the market is below the remaining mortgage loan principal value

Overvalued real estate property effectively forces new homeowner and mortgage lender to lose.
Title Insurance is a way to circumvent this condition by securing the actual registered mortgage loan value.

Title Insurance Protection mechanism

It is onetime payment insurance premium; however, it can secure all parties including overvalued real estate property sale-purchase deals.

  • With “Title Insurance” new property owner would insure good level of protection against fraud, liens, encumbrances and defects
  • With “Title Insurance” mortgage lenders are protected from devalued real estate property on economic conditions changes
  • With “Title Insurance” real estate property appraisers are protected from overvaluing legal battles
  • With “Title Insurance” lender and new owner are protected from incidents during the ownership transfer period

Benefits of “Title Insurance” are much more.

Author: Jawad Alalawi
Information Technology Professional specialized in Financial Payment Services, Risk Management, Information Security, and Compliance. Experienced in solutions development and implementation, and technical writer.
Banking and Technology Information Security Consultant