What is Title Insurance?
Title insurance is an exclusively American invention.
Its purpose was well stated in the first advertisement
for title insurance back in the late 1800s:
"This company insures the purchaser’s of real
estate and mortgages against loss from defective titles,
liens, and encumbrances. Through these facilities [the]
transfer of real estate and real estate securities can
be made more speedily and with greater security than
hereto before." [circa 1876]
Protecting purchasers against loss is accomplished by
the issuance of a title insurance policy, which states
that if the status of the title to a parcel of real
property is other than as represented, and if the
insured suffers a loss as a result of title defect, the
insurer will reimburse the insured for that loss and any
related legal expenses, up to the face amount of the
policy.
Title insurance differs
significantly from other forms of insurance. While the
functions of most other forms of insurance is risk
assumption through the pooling of risks for losses
arising out of unforeseen future events (such as death
or accidents), the primary purpose of title insurance is
to eliminate risks and prevent losses caused by defects
in title arising out of events that have happened in the
past. To achieve this goal, title insurers perform an
extensive search of the public records to determine
whether there are any adverse claims to the subject of
real estate. Those claims are either eliminated prior to
the issuance of a title policy or their existence is
excepted from coverage.
BACK TO TOP Benefits of Title Insurance Title
insurance issued provides a broad range of benefits to
the parties involved in a real estate transaction. To the Purchaser of Real Estate
The purchaser of real estate needs protection
against serious financial loss due to a defect in the
title to the property purchased. For a single, one-time
premium, which is a modest amount in relationship to the
value of the property, a buyer can receive the
protection of a title insurance policy – a policy that
is backed by the reserves and solvency of the Company. A
title insurance policy will cover both claims arising
out of title problems that could have been discovered in
the public records, and those so-called
"non-record" defects that could not be
discovered in the record, even with the most complete
search.
A title insurance policy will not only protect the
insured owner, but also that person’s heirs for as
long as they hold title to the property, and even after
they sell by warranty deed. The Company will not only
satisfy any valid claim made against the insured’s
title, but it will pay for the costs and legal expenses
of defending against a title claim.
To the
Lender
The overwhelming majority of mortgage loans made
in the United States are made by persons who are acting
in a fiduciary capacity – by savings and loan
associations, savings banks, and commercial banks on
behalf of their depositors, and by life insurance
companies on behalf of their policyholders. Because they
are lending other people’s money (other people’s
savings or policyholder’s funds) these lenders must be
concerned with the safety of their mortgage investments.
A policy of title insurance provides a mortgage
lender with a high degree of safety against the loss of
security as a result of a title problem. This protection
remains in effect for as long as the mortgage remains
unsatisfied.
To the
Seller
An owner of real property whose interest is insured by
an owner’s title insurance policy has the assurance
that the title will be marketable when selling the
property. The title insurance policy protects the seller
from financial damage if the seller’s title is
rejected by a prospective purchaser. Also, when the
seller conveys with "warranties," which is a
traditional, the seller is still protected if the buyer
sues because of a breach of those warranties. To the Real Estate
Attorney
Title insurance enables the real estate attorney
to provide the client with substantially greater
protection than would be afforded by the attorney’s
opinion alone. The attorney’s opinion is only limited
to recorded matters and the client can only recover from
the attorney if the attorney is found to be negligent.
Title
Issues
The job of searching the public records to identify
existing rights and interests is not an easy task. The
title searcher or abstracter reviews the public records
to find all aspects of title, which can be seen and
recognized. From the title search, the title examiner
produces an opinion of title, from which the Company
will issue its insurance.
In many areas, the title to a property can be traced
back to a royal grant, charter, or the United States
government. In many areas, titles are not traced back
that far; instead, local custom or title insurance
company requirements dictate a shorter search.
There are few titles, if any, that have a perfect
history from their source, or root, to the present day.
Each transfer of ownership is a "link" in what
is referred to as the "chain of title." As
each transaction or link takes place, there is a
potential for a problem. Even if the entire chain of
title appears to be in order, the chain is still subject
to interpretation. When searching a title, what we are
trying to determine are the various rights and interests
that make up each link in the chain as it has passed
from one owner to another.
A "title" is composed of three basic
elements.
- Rights
and interests that are disclosed in the public
records or by physical inspection of the property,
i.e., deeds, mortgages, leases, etc., parties in
possession, utility easements, etc.
- Rights
and interests that are not recorded but exist, i.e.,
limitations imposed by laws and statutes, etc.
- Rights
and interests that are hidden, i.e., forgeries,
secret marriages and unknown heirs.
Every title is made up of many different
"rights" and "interests" that may be
owned by different people. The "owners" of the
property own the most valuable of the property’s
rights and interests, but other people may also have
rights to the property, such as easements for utilities
or mortgages, etc.
Each title can be compared to sticks in a bundle. The
rights and interests are represented by the sticks. The
"owners" own what we call a "fee
simple" title, that is, they have purchased the
most vital and valuable sticks including rights of
possession, use, occupancy, enjoyment, inheritance, etc.
Also, within the bundle are sticks that may be owned by
other parties. These are called encumbrances and may
consist of easements, mortgages, liens, etc.
When a person purchases a parcel of
real estate, it is not only the physical property itself
that he or she acquires, but the sellers rights and
interests, "the seller’s title," in the
property. It is essential for the prospective purchaser
to know before the transaction takes place, precisely
what rights or interests the seller can convey. The
purchaser also needs to know who else may have rights or
interest in the property, and about any encumbrances
against the property that may affect the use or
enjoyment of the land. The title search must cover all
these rights and interests.
BACK TO TOP TITLE INSURANCE FAQ Why Do You Need It?
Buying a new home is one of life's most gratifying
experiences. As you approach the big day of closing,
however, all the details can be a little overwhelming.
You might easily overlook the single most important step
in the entire process -- the purchase of Title Insurance
on the wonderful new home of yours. What is a Title?
A title is the evidence, of right, that a person has to
the ownership and possession of land. It is possible
that someone other than the owner has a legal right to
the property. If that right can be established, this
person can claim the property outright or make demands
on the owner as to its use. Do I need Title Insurance? Definitely.
Title insurance is a means of protecting yourself from
financial loss in the event that problems develop
regarding the rights to ownership of your property.
There may be hidden title defects that even the most
careful title search will not reveal. In addition to
protection from financial loss, title insurance pays the
cost of defending against any covered claim. What can make a Title Defective? Any
number of problems that remain undisclosed after even
the most meticulous search of public records can make a
title defective. These hidden "defects" are
dangerous indeed because you may not learn of them for
many months or years. Yet they could force you to spend
substantial sums on a legal defense, and still result in
the loss of your property. But the lender already requires Title Insurance, won't that protect me?
Not necessarily. There are two types of Title
Insurance. Your lender likely will require that you
purchase a Lender's Policy. This policy only insures
that the financial institution has a valid, enforceable
lien on the property. Most lenders require this type of
insurance, and typically require the borrower to pay for
it.
An Owner's Policy on the other hand is designed to
protect you from title defects that existed prior to the
issue date of your policy. Title troubles, such as
improper estate proceedings or pending legal action,
could put your equity at serious risk. If a valid claim
is filed, in addition to financial loss up to the face
amount of the policy, your owner's title policy covers
the full cost of any legal defense of your title.
How much does Title Insurance cost?
The one-time premium is directly related to the value of
your home. Typically, it is less expensive than your
annual auto insurance. It is a one-time only expense,
paid when you purchase your home. Yet it continues to
provide complete coverage for as long as you or your
heirs own the property. When should I look into purchasing Title Insurance?
Talbot Law Offices, P.C. can begin the
process as soon as the Purchase and Sale Agreement is
signed. With a brief summary of the details, our team of
title experts will begin a search of the public records
and issue a title commitment. Because there are a number
of steps we must take to make certain that we know all
we can about the title, it is wise to get the ball
rolling as soon as possible. What items are needed at closing?
You will want to have these items complete
or in hand when you come to the closing (please confirm
with your escrow officer, as practices vary by state):
Buyer
- Cashier's
check(s) to make all payments
- Proof
of purchase of insurance for fire, casualty, etc.
- Photo
identification (passport, driver's license, or
state-issued identification card)
Seller
- Invoices
for any unpaid taxes, utilities, assessments, and
latest utilities meter readings
- Any
unrecorded instruments that affect the title
- Proof
of satisfaction of any mechanics' liens, chattel
mortgages, judgments, or mortgages that were paid
prior to the closing
- Photo
identification (passport, driver's license, or
state-issued identification card)
BACK TO TOP
Content Courtesy of Old Republic. 2005. |
