18 Oct What is a Title Binder?

Title Binder. This topic is often a confusing topic for home buyers and sellers alike, and it’s no surprise. Why? Because a title binder is NOT an actual binder where you would house notes related to buying or selling a home.

• A title binder is an important concept you should be familiar with so that you can save money if plan on selling your home within two years after purchasing it.

• A title binder is often referred to as an interim binder. Regardless of how it’s referenced, it is a commitment to issue a title policy.
  
  

Do you need a title binder?

This is a great question! The easy answer is to ask yourself the following questions: “How long do I plan on keeping this property?”

If you plan on staying in your home for more than two years, have no intention to flip your home or don’t foresee plans for frequent relocation, you most likely do not need to worry about a title binder. But, if you plan to sell the home in less than two years, the title binder will serve as a costing saving tool to you.

How does a title binder work?

Whenever you buy or sell a home, you incur costs to have the title searched. The purpose of title insurance is to ensure the buyer or lender for the property against unknown defects in the title.

There is a one-time premium that is paid to the title insurance company. This company is responsible for examining public records, preparing title abstracts, selling title insurance and issuing the insurance after conducting a title search on the property. If you purchase a title binder up front, you may save hundreds of dollars in title fees in the future.

How? Because the title binder allows the real estate buyer to resell the same property and have a policy of title issued to the new buyer at fraction of the cost.

Example of how a title binder works

To put things into perspective, here’s an example that illustrates how a title binder might save an investor money.

An investor buys a home with the intent to fix it up and sell it within one year. If this investor purchases a title binder upfront, he or she can sell the home using the same title company that was initially used and will avoid having to pay to have the title searched again for the new buyer.

Additional things to know about the title binder

• Title binders were created for specific real estate transactions and aren’t applicable to every real estate transaction.
• The standard term for a title binder is two years. There is one caveat to that though. Some companies will extend the term for an additional year for an additional fee.
• You must use the title company that used to purchase the title binder when the property is sold.
• Often, the listing agent for the individual who initially purchased the property and is now selling it isn’t aware of the title binder, so be sure to communicate this.
• Typically, in California, the seller of the property pays for title insurance, and the title binder can help avoid duplicate fees.
• Remember, a title binder is NOT insurance. It is simply a commitment to issue an insurance policy.
• Title binders only apply to buyers.

We hope that this article helped provide clarification around the topic of title binders! Of course, if you have any questions about title binders or any other escrow-related topic, please don’t hesitate to contact us!