Often when people hear the term ‘title binder,’ they picture a three-ring binder filled with copious amounts of paperwork. This term is often confusing for both home buyers and sellers, in that many believe it is a place to keep notes that are related to buying or selling a home. In reality, that’s not what it is at all. Instead, a title binder is a commitment to issue a title policy.
If you plan on selling your home within two years of purchasing it, the title binder is an important concept to understand. That’s because it can help you save money. You will often hear this referred to as an “interim binder,” so know that the two terms are used interchangeably.
Will You Need a Title Binder?
Is the plan to remain in your home for more than two years? If so, you more than likely do not need a title binder. However, if your plans include flipping your home or perhaps relocating, then a title binder is something you will need. Again, it is a cost-savings tool, and we will talk more about how it works below.
How Will a Title Binder Save Me Money?
Each time a home is purchased or sold, there is a cost to have the title searched. So, buying a title binder upfront could save you hundreds of dollars in title fees moving forward. It works because the title binder allows the buyer to resell the same property with a policy of title issued at a cost that is far below, starting from square one.
Title insurance serves to protect the buyer or the lender against any unknown defects in the title. When you pay the title insurance company their one-time premium, they get to work looking through public records, preparing abstract titles, and selling and issuing title insurance after they have searched the title on the property.
How Does a Title Binder Work?
Let’s take a look at a real-life example of how a title binder functions and can help save money.
Hypothetically, this buyer is an investor who is purchasing a home to fix-up and flip for sale within one year. This buyer elects to purchase a title binder upfront. Now, when the time comes to sell this home, they will be able to use the same title company that was initially used for the purchase, and they can avoid paying to have the title searched again for their new buyer.
What Else Should I Know About Title Binders?
The above information covers the high points of a title binder, but there are some other things that you might want to know. For example, the standard term for a title binder is two years. However, some companies will extend the term for an additional year at a cost. Additionally, title binders are not applicable to all real estate transactions, and in fact, they only apply to buyers.
Here are some other quick facts:
You will be required to use the original title company from whom you purchased the title binder when the property is sold.
Be sure to communicate that you have a title binder to the listing agent. They may not be aware that you have one.
In California, it is typical for the property’s seller to pay for title insurance. Remember: a title binder can help avoid duplicate fees.
A title binder is not the same as title insurance. Put simply; it is a commitment to issue an insurance policy.
If you have questions about this topic or need assistance with any escrow-related matter, please get in touch. Our team is here ready to help in any way that we can!