Let’s start with the basics since the name is a little deceiving… What is a title binder?
No, it’s not the binder that holds notes or paperwork about your title and escrow activities.
The title binder, also known as an interim binder, is:
- A commitment to issue a title policy.
- Something you should know about to save money if you are planning to sell your home within 24-months after its purchase.
- Used to protect the property seller and buyer of a property in a transitional phase.
- A cost-saving tool for people, i.e., investors who are thinking about ‘flipping’ a home.
- A cost-savings tool for people who relocate frequently and don’t plan to stay in a home for more than 24-months.
One important key to the title binder is answering this one question, “How long do I plan on keeping this property?’
- Each time a home is sold or bought, you incur fees to have the title searched.
- Title insurance protects the home buyer or lender of a property against unknown defects in the title.
- The title insurance company – the business of examining public records, preparing title abstracts, and selling title insurance – for a one-time premium, will issue insurance after doing a title search on the property.
- When you purchase a title binder up front, it can save you several hundreds of dollars in title fees because it allows the purchaser of real property to resell the same property and have a policy of title issued to his/her buyer at a fraction of the cost.
Example of How Title Binder Works
Let’s say an investor buys a “fixer-upper.” He or she would purchase a title binder immediately after buying the property since he or she plans on fixing it up selling it within a year. When the property is put on the market, the same title company originally used is used again to avoid having to incur the costs of having the title searched again for the new buyer.
Important Things to Remember About the Title Binder
- The title binder has a specific purpose and cannot be used in every type of real estate transaction.
- The standard timeframe for the title binder is two years, but there are some title companies that offer an additional year extension for an additional cost.
- The same title company that issued the title binder must be used again when the property is sold.
- The title binder is not insurance; it is a commitment to issue an insurance policy.
- If a claim comes about during the title binder period, the person to whom the title binder was issued may convert the title binder into an owner’s policy of title insurance naming him/her as insured and tender that claim under the policy.
- Title binders are only for buyers, not lenders, and are issued instead of an Owner’s Policy.
In California, under normal circumstances, the seller of real property pays for the buyer’s title insurance. The title binder (interim binder) provides a method to avoid duplicative costs.
The title binder gives its holder the option to obtain coverage during the period set forth in the title binder, to sell the property and to provide a title insurance policy for the new buyer. All of this comes at the cost of a single owner’s policy, plus the title binder fee, which is typically 10 percent of the owner’s policy premium.
Similarly, if a buyer (or developer) plans on selling the property within a specific time frame (typically two years), a title binder may constitute a useful and cost-effective alternative.
We hope this post has helped you understand what a title binder is, what a title binder is not and how it can assist in saving money in specific scenarios.
Of course, if you have any questions about title binders or if we can assist you with any of your escrow needs, please don’t hesitate to contact us. We are here to help!