What is Title Insurance?

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Title insurance is an essential element of any home purchase whether cash or lender financed. Title insurance helps protect your investment in your home. For a one-time fee, title insurance assures marketable ownership of title for the homeowner and then provides insurance protection for as long as you own your property. The title insurance policy for the owner (termed an Owner’s Policy) is typically issued in the amount of the real estate purchase price. Who pays for title insurance is a matter of local custom.  In Pennsylvania, the buyer purchases title insurance for the property he is purchasing. It is estimated that closing companies like Settlements, Ltd. discover and cure errors in one out of every three real estate transactions before the buyer ever gets to closing. It ensures that the property you purchase becomes yours without any past title problems or issues.  By protecting your investment with title insurance, you are guarding against claims, restrictions on land use or loss of your property. Dating back years, plenty of opportunity exists for a defect to appear on your property’s title, including but not limited to tax liens, forged deeds, open mortgages, common errors in the public records and mistakes made when examining the title, deed challenged as being given under fraud or duress, foreclosure deeds where the appropriate procedures were not followed, deed signed utilizing an invalid power of attorney, misinterpretation of a will, missing heirs not accounted for, errors in tax records, discovery of a later will after probate of first will, deed to land without a right of access to a public street or road, right of access wiped out by foreclosure on neighboring land. When you purchase title insurance, we thoroughly examine the title to the property, thoroughly examine all the public records and remedy outstanding title issues, thus providing you with ownership of your new property. We refuse to close on a property with potential title problems – it is really that simple.

 

Without title insurance, you could be held responsible for someone else’s mortgage, unpaid back taxes, satisfaction of other liens or be forced to defend your title against third party claimants. Title insurance is a one-time charge at the time of purchase.

 

For all of these reasons, Settlements, Ltd. refuses to close without the purchase of title insurance.

What are Transfer Tax Deviations?

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Deviations from 1% Local Transfer Tax

The Realty Transfer Tax in Pennsylvania is generally 2% of the sales price stated on the deed. 1% is remitted to the Commonwealth of PA and 1% to the local government. Some local governments, however, vary their portion. The following is a list of localities that impose something other than 1%. These figures represent the local government portion only; the 1% for the Commonwealth of PA must be added for the total amount due.

SALES PRICE X LOCAL GOVERNMENT + 1% = TOTAL TRANSFER TAX OBLIGATION

This cost is typically split equally between the buyer and seller.

Allegheny County

Bellevue Borough – 1½%
Bethel Park Municipality – 1½%
Greentree Borough – 1½%
Hamptom Township – 1½%
McCandless Township – 1½%
McKeesport City – 2%
Monroeville Municipality – 1½%
Mt. Lebanon Municipality – 1½%
Mt. Oliver Borough – 2%
O’Hara Township – 1½%
Penn Hills Municipality – 2%
Pine Township – 1½%
Pittsburgh City with Pittsburgh SD – 3.5%
Pittsburgh City with Baldwin-Whitehall SD – 3%
Upper St. Clair Township – 1½%
West Deer Township – 1½%
Whitehall Borough – 1¼%

Beaver County – 1%

Somerset County

Wellersburg Borough – ½%

Washington County

Peters Township – 1½%

Municipalities in Butler, Beaver, Westmoreland also charge the 1% and the 1% to the state
These are some of the counties Settlements, Ltd. regularly serves

This is a guide only – your cost estimate will specifically determine the transfer taxes needed on your transaction.

What are Pennsylvania Transfer Taxes or “Stamps”?

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In Pennsylvania, there is a 1% transfer tax on real estate transfers. Most cities, municipalities, townships and boroughs in Pennsylvania also charge a transfer tax which may range from 1% to 4% of the purchase price.  This tax is divided equally between the seller and the buyer in a real estate purchase, although the split could be negotiated differently.

 

Tax-Exempt Transfers

Certain transfers are exempt from real estate transfer taxes. These include the following:

  • Transfers between spouses, parents and children or the spouse of a child, siblings or spouse of a sibling, grandparent and grandchild or spouse of grandchild, sisters or brothers-in-law so long as they are not remarried,
  • Gifts or transfer for no consideration which pass under a will or intestate succession where no will is involved
  • Transfer for no consideration to a Trustee where the transfer would be otherwise exempt, i.e., where all beneficiaries of the Trust are exempt family members
  • Transfer for no consideration to a Trustee of a living trust from the creator of that trust
  • Transfers made by corporations because of merger or consolidation
  • Transfers from a corporation to its shareholders or from a limited liability company to its members, of real estate, so long as they have been shareholders or members for two years or more

 

What Types of Deeds Are There?

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For residential real estate purposes, we normally deal with general warranty deeds, special warranty deeds and Fiduciary Deed. Our Agreement of Sale specifies a special warranty deed but your buyer may wish to negotiate for a general warranty deed. Your seller may have also received his deed by Quit Claim Deed, Tax Deed, Sheriff’s Deed or a Deed in Lieu of Foreclosure.  The following is a brief description of these various types of deeds.

  • General Warranty Deed– the covenants of title in this type of deed apply to all defects in title, including those that arose prior to the seller’s ownership. The sellers warrants or promises that neither he nor anyone who previously owned the property has made the title defective.
  • Special Warranty Deed– warrants that the seller has not impaired the title during his ownership.  It does not contain a warranty against defects or claims against the property that arose prior to seller’s ownership nor does it obligate the seller to do anything further once title is transferred to buyer. This is the default type of deed specified in our Agreement of Sale.
  • Quit Claim Deed– is a release passing any title, interest or claim that the seller may have in the property but it contains no warranty of interest. A quit claim deed is most often used between family members or divorcing spouses.
  • Fiduciary Deeds– is given by a fiduciary, whether a trustee of a trust, an executor or administrator of a decedent’s estate, a guardian of a minor or incapacitated person. The fiduciary holds the title to the property on behalf of another.  The warranty given by a fiduciary is limited because the fiduciary has little or no knowledge of the title to the property.
  • Tax Deed– conveys title to the property sold by a governmental taxing body for nonpayment of real estate property taxes.
  • Sheriff’s Deed– conveys title to a property from the county sheriff resulting from a judicial proceeding.  This is the type of deed received when a property is purchased through a mortgage foreclosure proceeding.
  • Deed in Lieu of Foreclosure– is given by the owner of the property to the bank which holds the mortgage on the property when the mortgage is in default and foreclosure is imminent. This deed is given to the bank by the property owner. The bank does not pursue mortgage foreclosure proceedings.

Title Insurance

An owner’s title insurance policy protects the buyer if a title problem of a covered item arises.  The buyer pays a one-time fee to the title insurance company based on a scale as submitted by the title insurance company to the PA Insurance Commissioner.  This purchase of title insurance protects your property investment.  It is available to buyers in both cash and lender-financed transactions.

What is Escrow for Taxes & Insurance?

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You should discuss with your loan officer whether or not you will be required to escrow for real estate property taxes and homeowner’s insurance as a part of your loan.

If you escrow, every month 1/12 of your taxes and insurance will be paid into an escrow account so that the tax and insurance bills can be paid on a timely basis. You will receive an initial, estimated escrow analysis at closing and again at the end of every calendar year. A surplus of money in your escrow account will be returned to you. Shortages in your escrow account must be made up by you. You can usually elect to increase your monthly payment or deposit a lump sum into your escrow account to make up the shortfall. This would occur because of increases in your tax or insurance bills.

In addition to the monthly payment of taxes and insurance, at closing an amount sufficient to meet your tax and insurance obligations will be collected. This amount will be determined by the date that the tax or insurance bill will be due minus the number of months of payments you will make before that date.

If you are escrowing for taxes and insurance and receive any tax or insurance bills at your address, it is important to forward those bills to your lender for payment. This must be done immediately to eliminate penalty and interest payments.

Waiving Escrows

If you do not escrow for taxes and insurance, but elect to pay your own, you are responsible for payment of all tax and insurance bills on your property. You will sign an escrow waiver agreement at closing setting forth your agreement with the lender terms for waiving escrows. There may be a charge associated with the waiver of escrow. Your lender may require periodic proof that the tax and insurance bills are timely paid. If you become habitually late or delinquent in the payment of your tax or insurance bills, your lender may require you to establish an escrow account.

Regardless of whether or not you escrow, you are responsible for applying for any tax exemptions like senior citizen,homestead or new construction tax abatements. Your lender will not apply for these exemptions for you.