What is title insurance?
Your title insurance protection is a permanent assurance that your ownership and use will be defended promptly against claims whether the claim is valid or not.
Buying a home is, for many of us, the biggest single investment we’ll ever make. Knowing this, most homeowners provide for the security and safekeeping of their homes by insuring them against hazards such as fire, theft and weather damage. But there is another hazard that can pose an even greater risk to home ownership and that is defects in the title to your property. This can cause you to lose part or all of the investment in your home. Fortunately, there is a way to protect your investment from these title defects; it comes in the form of title insurance. Title insurance is your policy of protection against loss if any problem results in a claim against your ownership and protects your investment in your home. The following information will answer your questions and help you to understand the value of title insurance in protecting your homeownership and making the home-buying process a smoother one.
What title insurance provides:
- Title insurance provides peace of mind for the duration that you own your property for a one-time-fee.
- It insures against claims of former owners.
- It insures against fraud or forgery in connection with prior documents.
- It protects the insured party against loss due to lack of access.
- A process is provided that ensures disclosure or encumbrances against a particular property that could affect the use of the land.
- A guarantee defends title to the subject property, including attorney fees or defense if necessary.
- Lenders are protected, thus facilitating the financing of real property transactions.
- Easements and restrictions that may affect your property are disclosed.
- It provides protection against recorded judgments, mortgage, or tax liens that could have an interest in the property.
- Title insurance companies maintain large statutory reserves to be in a position to pay claims under their policies.
Who is title insurance for?
There are two basic types of title insurance protection – one for the mortgage lender and one for the homeowner or real estate investor.
If a mortgage is to be placed on your new home, the mortgage lender will probably require that you purchase title insurance to protect the institution’s position as a holder of a mortgage loan. But a mortgagee’s title insurance policy doesn’t protect you, the homeowner. You need an owner’s title insurance policy to protect your investment.
You pay only once. There are no renewal premiums, and there is no expiration date on the policy. Yet the protection lasts as long as you, or your heirs, retain an interest in the property.
Examples of “How ” Title Insurance Protects
The Walking Corpse
The homeowner was a widow with seven sons. One of her offspring, the captain of a fishing vessel, had not been heard from for many years. Presumed lost at sea, he was declared legally dead. When the widow passed away, her six remaining sons inherited her home. It was an attractive house, and they put it on the market at a modest price to facilitate settlement of the estate. Recognizing a bargain, the Montgomerys bought the property. They were delighted with their new home – until the long lost sea captain returned from the dead. It turned out the widow’s missing son had decided years ago to start a new life elsewhere. When the captain eventually returned and found the house had been sold, he promptly filed a claim against the Montgomerys for his rightful share of the property.
News Travels Slowly
A lady of means placed her home in the country up for sale. Before embarking on a cruise, she gave her lawyer power of attorney on the property. Weeks later, the Harper family decided to buy the country place. Its fertile land and picturesque setting were ideal for farming. Exercising his authority,the attorney signed the deed and sold the property to the Harpers. Everything appeared proper, except for one hitch: The woman died in a distant part of the world before the attorney signed over the property. When the lady’s heirs discovered that the land had been sold after her death, they claimed the deed was invalid and demanded their right to the property.
The Refined Forger
The Carters were charmed by the elderly lady. Impeccably mannered, she explained that her country home had been vacant for some time, so she was letting it go at an irresistible price. The Carters leaped at the offer, only to find out later they were unwitting victims of a classic forgery caper. More cunning than charming, the old woman had learned that the real owners of the country home were living in Europe. She forged a deed to the property and had it recorded in her own name. Her low asking price assured a quick sale. By the time the Carters were made aware of the scam, the little old lady was long gone.
John’s Other Wife
John and Maxine were an ideal couple: pleasant, personable, respected among their peers. They made quite an impression on Mr. and Mrs. Denton, who purchased their home. The Denton’s were less impressed, however, when they heard from John’s real wife. It seems that Maxine wasn’t John’s wife but his mistress, which meant that the deed of ownership she signed was invalid. The Denton’s did eventually meet John’s legitimate wife – in a court of law when she claimed her legal right to the property.
Are homeowners helpless against these and other pitfalls?
Absolutely not; you can safeguard your real estate investment against these and other “horrors” with an owner’s title insurance policy from Fidelity National Financial Lawyers, underwriters for North Meridian Title & Escrow. First, a service known as a title search describes (as well as possible) the condition and quality of the title to the land you are buying. Then, your title insurance protects you against mistakes or threats that might otherwise result in financial loss to you, including those hidden, unknown items.
Title and Insurance FAQs
For as long as your or your heirs retain an interest in the property and, in some cases, even beyond.
Probably a lot less than you think. Charges vary in different sections of the country, but generally the cost of title insurance (including search, examination and related services) amounts to about one percent, or less, of the cost of the property. And unlike other insurance premiums, which must be paid annually, a title insurance premium is paid one time only, usually at settlement.
Yes. Basically there are two different types of policies – a loan policy and an owner’s policy. The loan policy protects the lender’s interest in the property as security for the outstanding balance under the buyer’s mortgage. The owner’s policy safeguards the buyer’s investment or equity in the property up to the face amount of the policy.
If the builder of my home already has title insurance on the property, why do I need it again when I purchase the land from him?
A title policy insuring the builder does not protect you. Also, a great many things could have happened to the land since the builder’s policy was issued. Liens, judgments and unpaid taxes for which prior owners were responsible may be disclosed after you purchase the property – causing you aggravation and costing you money.
If a claim is made against your property, title insurance will, in accordance with the terms of your policy, assure you of a legal defense – and pay all court costs and related fees. Also, if the claim proves valid, you will be reimbursed for your actual loss up to the face amount of the policy.
That depends on the claim. In an extreme case, you could lose your entire home and property – and still be liable to pay off the balance of your mortgage. Most claims are not that dramatic, but even the smallest claim can cost you time, money and aggravation, and you may have to pay costs for a legal defense.
Title insurance is your policy of protection against loss if any of these problems – even a “hidden hazard” – results in a claim against your ownership.
Yes. There are some “hidden hazards” that even the most diligent title search may never reveal. For instance, the previous owner could have incorrectly stated his marital status, resulting in a possible claim by his legal spouse. Other “hidden hazards” include fraud and forgery, defective deeds, mental incompetence, confusion due to similar or identical names and clerical errors in the records. These defects can arise after you have purchased your home and can jeopardize your right to ownership.
A title search can show a number of title defects and liens, as well as other encumbrances and restrictions. Among these are unpaid taxes, unsatisfied mortgages, judgments against the seller and restrictions limiting use of the land.
A title search is a detailed examination of the historical records concerning a property. These records include deeds, court records, property and name indexes, and many other documents. The purpose of the search is to verify the seller’s right to transfer ownership, and to discover any claims, defects and other rights or burdens on the property.
A title is the foundation of property ownership. It is the owner’s right to possess and use the property.
Why is transferring the title to real estate different from transferring the title to other items, such as a car?
Because land is permanent and can have many owners over the years, various rights in land may have been acquired by others (such as mineral, air or utility rights) by the time you come into possession of it, even if the land has never before been built upon. So in order to transfer a clear title to a piece of land, it is first necessary to determine whether any rights are outstanding.