The Butler Rebate Explained
Have you heard about the “Butler Rebate?” Unless you’re in real estate or real estate finance, while you may have heard the term in passing it’s likely the Butler Rebate isn’t exactly an everyday conversation. But for homeowners and homebuyers, the Butler Rebate can put more money back into your pocket during the course of a purchase or a refinance. What exactly is the Butler Rebate and how does it work in practice?
The Butler Rebate is the result of a Florida Supreme Court case settled back in 2000 and it affects title insurance. But first, let’s be clear on what title insurance actually is. You may not know why you need title insurance but your lender won’t approve a loan without it. Title insurance policies are issued to protect the lender and the owner. How? When someone holds title to a property that person is legally recognized as the owner.
When a property is legally sold from one party to another, title changes hands. Title insurance protects the owners and the lender against any previous claims against the property. For example, a couple bought a house together a few years ago and both names appear on title. Later, they get divorced with one spouse keeping the home. A few years after that, the occupying spouse sells the home. The new owners soon hear a knock on their door and it’s one of the previous owners who were never taken off title. The occupying spouse deeded the home to the new owners but the non-occupying spouse did not and still has a legal interest in the property. In other words, the home was sold but there is another owner. Title insurance protects lenders and owners against such claims as well as any previous fraud from the very first owner to the last.
Title insurance is just that, it’s an insurance policy and like all insurance policies the state insurance commissioner has the authority to set insurance rates for real estate. When someone buys a home and a title insurance policy is issued, the price for the title insurance policy is predetermined. However, because of the Butler Rebate, consumers can now negotiate or otherwise receive a rebate from the title company as part of the title company’s commission for selling the title policy. Title agencies have the ability to offer you a discount on title insurance and each title agency can have its own rebate policy.
If you’re buying a home and apply for a home loan, your lender will provide you with an estimate of closing costs. On this estimate, you will see the amount itemized for title insurance. Title insurance is something that you can shop for on your own but you probably don’t know which agencies offer the discount. Instead, you can rely on your loan officer to provide you with a competitive loan program that also includes a discounted title insurance policy due to the Butler Rebate.