Title Insurance FAQ
Title insurance can be unnecessarily confusing to both buyers and sellers. We hope this compilation of some of the most frequently asked questions about title insurance will eliminate some of the mystery surrounding this important aspect of real estate transactions.
What is a Title?
A title is the evidence or right which a person has to the ownership and possession of land. A defect in that title can be any legal right held by someone other than the owner to claim property or to make demands on the owner of that property.
What is Title Insurance?
Most kinds of insurance are self-explanatory. Fire insurance protects against losses from fire. Collision insurance guards against the cost of a dented, damaged car. But what does it mean to insure your title to real estate?
Real estate has always been considered a valuable possession. It is so basic a form of wealth that many special laws have been enacted to protect ownership of land and
the buildings which stand on the land.
You should realize whenever you buy property that the owner who is selling it to you has extremely strong rights, as do his family and heirs.
Also, there may be others - in addition to the owner - who have "rights" in the property you are going to buy. These may be governmental bodies, or contractors who performed work on the property, or other individuals who have perfectly proper unpaid claims against the property.
Anyone who has such a claim is, in a sense, a part-owner. The property may be sold - to you - without the party who has a claim knowing about the sale. And you may know nothing about such a claim at the time you buy. It doesn't matter. Such claims may remain attached to the real estate you have purchased.
Title insurance is therefore a contract to protect an owner against losses arising through defects in the title to real estate owned. If the title is insurable, the company guarantees the owner against loss due to any defect in title or expenses in legal defense of the title pursuant to the terms of the policy.
What Can Make a Title defective?
There are many possible causes of title defects that no examination can disclose. That is because they have never been recorded and thus do not appear in the abstract. A title insurance policy protects the owner against all these hidden risks; those listed below and many more:
Fraud
False claims of ownership, forged deeds, wills, signatures, conveyances, instruments, false representations, false records of all sorts, illegal acts of trustees, guardians, administrators, and attorneys.
Human Error
Errors in copying, indexing, recording; errors by administrators, executors, trustees, guardians and attorneys; destruction of records.
Improper Deeds and Wills
Deeds by persons of unsound mind, minors; deeds delivered after death or without the grantor's consent; invalid, suppressed, erroneous wills, missing heirs, unsettled estates.
Liens and Other Rights
Liens for unpaid estate, inheritance, income, property and gift taxes; homestead rights, community property rights; irregular court proceedings, court opinion reversals, lack of court jurisdiction; defective foreclosures.
Owner's policies and lender's policies
A lender will often require a title policy for their protection alone. Such a policy does not protect the owner. To protect themselves against possible title defects an owner should purchase an owner's title insurance policy on the property.
Why buy Title Insurance?
When a person buys a car or consumer goods, they seldom need to know whether the former owner is married, single or divorced; whether they have paid their taxes or are involved in a lawsuit. But when a person buys a home it is necessary to have all that information and much more. For while he may own the property, others may also have rights in that same real estate.
A competent investigation can uncover such items as unpaid taxes, easements, restrictions and more. However, all items affecting the title are not contained in a single book, in a single office or even in the same city. Then, add to this, the possibility of human error at a multiplicity of points. Yet what is not in the public records often causes title problems. For all these reasons and many more, a property owner needs the protection afforded by title insurance.
Will I get a clear title?
It is of the greatest importance that you do. But this means that you must be informed about any of these claims against the property so that you can make certain they are cleared up before you buy. And it means that you must be protected against any undiscovered claims that may arise in the future to threaten your title and the possession of your property. Title insurance provides this two-fold protection.
What about defects hidden from public record?
This can happen. Title insurance companies call them "hidden risks" - the undiscovered claims which may arise long after you have purchased your home. While the goal of every title insurance company is to conduct such a thorough search and evaluation of public records that no claim will ever arise, protection against loss from claims on real estate which cannot be discovered by examination of the public records is the second part of the twofold protection that title insurance provides.
These hidden risks might be forgery, confusion due to similar names, or an error in the records.
If a claim is made against your title as the insured, your title insurance company will protect you by defending your title, in court, if necessary; and your title insurance company will bear the cost of settling the claim, if it proves valid, in order to perfect your title and keep you in possession of your property.
What should I look for when reviewing the title commitment?
Again, a title commitment is prepared prior to closing so that any potential “clouds” such as a break in the chain (or who owned the property) or any judgments that have or may in the future attach to the property can be identified. This is done in order to take the necessary actions to correct a “cloud” on the title prior to closing. In doing the search the title company will also look for any easements (utility, driveways, joint wells, etc) and restrictions that are part of the property. Finally, a title commitment will be issued by the title company prior to closing. It's a good idea to check the title commitment over in the following ways:
1. On Schedule A, make sure all names are spelled correctly and that the correct parties are shown, as well as that the correct sales price is shown.
2. Schedule B-1 shows anything that has to be completed prior to closing. It will state that a deed needs to be prepared and recorded between the parties, any mortgage that must be satisfied at closing as well as judgments that must be satisfied at or before closing. Sometimes one or more of the parties involved will need to sign a Judgment Affidavit – this is just to cover any potential "cloud" in title for any judgments that are found for the same name. For instance, a judgment is found for Jack Black, but in looking at it, it does not appear to be the same Jack Black that is buying the property. In this case we ask that the buyer signs a judgment affidavit verifying that the judgment found is not his.
3. Schedule B-II will list any easements or restrictions that may affect the land.
Questions or concerns? Please contact a Lake & City professional. If need be we can put you in touch with a title officer at one of our title company partners.