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Title Insurance: "Clear and Simple"

Simply click on one of the questions directly below to see the answer.

What is title insurance?

Title insurance is the application of insurance principles to hazards that are present in real estate titles. The actual definition of title insurance is a composite of the answers to the questions that follow.

What is "title?"

"Title" is the foundation of ownership of property. It means that you have a legal right to possess that property and use it within the restrictions imposed by authorities or limitations on its use-superimposed on the basic right to possession by previous owners.

Why does buying a home differ from all other purchases?

Because the life of any other property isn't comparable to the life of land. Owners die, new ones succeed, but land lasts forever. People who own goods may change their locations at will, but land is immobile. Because it's both permanent and immovable, it lends itself to the absorption of innumerable rights. Lawyers and jurists formed a separate body of laws for land. These laws, creating many types of rights in land, are so numerous and complicated that it's impossible for there to be a mathematical certainty of ownership.

What are some of the limitations and restrictions commonly imposed on land?

Many common encumbrances can be placed on land. The most common is a mortgage. As long as the mortgage (or any portion of it) is outstanding, only a limited title can be passed. Other common limitations include granting the right to cross the property with electric and telephone lines, an underground cable or sewer line. A family burial plot establishes a sanctified spot for all time. An ordinance may restrict land to residential use, or it may prohibit construction of a building closer than a specified number of feet from the street line.

What is meant by a title defect?

A title defect is anything in the entire history of ownership of a piece of real estate that may encumber the owner's right to the "peaceful enjoyment" of the property or that may cause the owner to lose any portion of the property.

Why should I protect the home I buy with title insurance?

Without title insurance, you become a self-insurer. This isn't advisable unless you're in the financial position to lose the money you have invested in your home without upsetting your financial condition in any way.

Is title insurance always used in property transfers?
No. Sometimes the buyer considers an abstract of title sufficient. Sometimes only a deed (usually a General Warranty Deed) is required. In other cases, an attorney will offer an opinion or certificate of title that a buyer might accept as sufficient protection.
Why isn't an attorney's opinion sufficient if he or she has examined the title?
There are many title defects that even the most astute title examination will not uncover. When that's the case, chance of recovery in the event of a title loss depends entirely on the solvency of the attorney examining the title, and that attorney's liability is limited to errors and oversights that would not be made by a diligent attorney. An attorney is not liable for loss caused by hidden defects.
Why won't a General Warranty Deed fully protect me?
With a General Warranty Deed, the Grantor can pass on to the Grantee only such title as he or she holds. It's true that if title fails, the Buyer may have, under certain circumstances, a cause of action against the Grantor, but the chance of recovery depends entirely on the financial ability of the Grantor to pay at the time the judgment is acquired-often after a long and expensive court action. Title insurance is a corporate guarantee of a company operating under the rules and regulations of the insurance commission or other state agency. The security afforded by any policy is controlled by the integrity and financial structure of the company issuing the policy.
What's wrong with an abstract?
An abstract is simply a condensed version of the recorded documents affecting title to the property. The limitations on the liability of an abstracter who issues an abstract are the same as those of an attorney who issues an opinion of title.
The contract I signed makes the sale subject to title to the property's being good. Doesn't that protect me?
Only on the surface. The Seller can't be sure the title is good. Even a perfect-looking title may be seriously defective with hidden defects. Then if anything should happen to defeat your title, your cause of action would be against the Seller. Your chance of recovery would depend on your finding and suing the Seller, winning the suit, and, finally, on whether or not the seller was able to pay the judgment. Regardless, your attorney's fees and expenses would be a loss to you.
If the real estate broker says the title is good, isn't that enough?
No. The broker can't be sure that the title is good. No one can.
The mortgage lender is usually represented by an attorney. Won't that attorney look out for my interests, too?
Only coincidentally, to the extent as your interests and those of the mortgage lender are the same. When a lender retains an attorney, the attorney must look after the lender's interests in any areas that may conflict with your own. You should have your own attorney represent you, too.
If I retain an attorney, can't I be assured that my title is good?

All attorneys know that there are hazards in real estate titles that cannot possibly be discovered with even the most diligent search of the public records. For example, the attorney can't be sure that the marital rights of all previous owners have been properly relinquished; that all mortgages, judgments, etc. affecting the property have been properly indexed in the record room; that all signatures on all recorded documents are genuine; that no unknown heir of a former owner can appear to assert his or her claim. These are just a few of the matters that can come up to defeat real estate titles. Among others are fraud, duress, infancy, insanity, impersonations, etc.

If you should suffer loss because of any "hidden defects" in a real estate title, an attorney is not liable. Liability extends only to losses caused by oversights or carelessness in the attorney's work. That liability is limited by the attorney's ability to pay, as well as by his or her life span.

When I buy a home and have it financed, should I still have title insurance to safeguard my purchase?
Yes. While the title insurance coverage afforded the lender and owner is somewhat the same, it's also considerably different in important ways. Because of the diminishing debt of the mortgage and the increasing equity of the owner in the property as he or she makes payments, it's apparent that there could be a complete title failure with the mortgagee suffering no loss because of title insurance coverage and the owner suffering substantial loss because he or she had no title insurance. If the owner is not protected with an owner's policy, it's entirely possible that payments made by the title insurance company in the process of perfecting title under a mortgagee policy can be made a lien against the property second only to the mortgage under which the mortgage policy was issued. The lien becomes, in effect, a junior or secondary mortgage secured by the property and must be paid off by the owner after the prior liens are paid, or before the property can be sold.
When I buy a home and the deed is recorded in a record room, wouldn't that prove that I own the home I bought?
No. It is only evidence that you have taken over whatever rights the Grantor had in the property. For example, if the deed to the Grantor had been forged, then the Grantor had no rights to pass on to you. As another example, maybe the driveway on your property had been made a joint driveway by giving the next-door neighbor the right to use it. In that case, the Grantor or Seller could not pass sole ownership of the driveway on to you, no matter what the deed says. The recorded deed is public notice that you have taken over only those rights the Seller may have had in the property.
Is title insurance as important as fire insurance?
Yes, since your losses without title insurance can be greater than fire losses. If a house burns, the land still remains to be rebuilt on. If title to the property fails, you have nothing. That's why owner's title insurance is always written to cover the value of the house and lot.
Does title insurance protect the safety of my investment and the security of my home?
Yes, but title insurance can't eliminate title defects any more than fire insurance can eliminate fire. However, title insurance does 1: assure you of the best possible legal defense if your title is attacked, and 2: reimburses you up to the face amount of the policy if the title, or any part of it, should fail.
Why don't we see title losses reported in newspapers?
A title loss is rarely as spectacular as a fire or hurricane, and a title loss is not as immediate as those threats. When a claim is made, it's followed by a long, involved court action filled with legal technicalities that can be confusing. All this is uninteresting to the press and its readers. The actual loss may take place years after the claim is made against the title. Perhaps within your experience you have known of a title loss, or title dispute-for example, a fight among heirs over a property or between neighbors over a boundary line.
Are there several kinds of title insurance?
Yes. One is the owner's policy, which the homebuyer needs to protect him- or herself. Next there is the mortgagee's policy, that protects only the mortgage company/money lender. Most financial institutions lending money for mortgages on a wide scale insist upon mortgagee title policies for their protection. Also, there is a leasehold policy, which is used primarily by commercial and industrial organizations that rent property through long-term leases.
How much does title insurance cost?
Local conditions affect premium rates. Sometimes rates are prescribed by the state agency responsible for proper operation of title insurance companies. The pure basic premium rate for owner's title insurance varies within the narrow range of $3.50 to $5.00 per $1,000 of coverage. Some areas combine the "title insurance" rate with the charge for title examination. Regardless of circumstances, this premium is payable only once. There is no recurring premium, although the policy is effective for as long as the insured or his or her heirs have any interest whatsoever in the property, and afterward so long as liability under any warranty of title exists.
Does the title insurance premium cover the fee for searching the title?
No. However, in some areas, a "package rate" is charged, which includes the attorney's or abstracter's search fee and the title insurance premium. The entire "package rate" is referred to as "title insurance." If a title search fee is not shown as such on your closing statement, the "title insurance" charge probably will include the search fee plus the title insurance premium.
When I buy a home and protect it with title insurance, what happens in the event someone should challenge my ownership of the property five or ten years after the purchase?
You notify the title insurance company which, following the terms in the policy, undertakes, at its expense, defense of the title. If the claim reaches the courts, the title company retains attorneys and bears the expense of defending the suit. This is true whether your period of ownership is a day or a generation or more.
Is title insurance protection available in the area where I plan to buy a home?
Most likely it is.
What should I do to make sure the home I buy will be safeguarded with title insurance?
Insist on title coverage at the initial stages of the transaction. Your attorney will know how to get it.
If the person I'm buying from has title insurance, why do I also need it?
First and most obvious is that the previous owner could, in a very short time, do all sorts of things to encumber the title. For instance, he or she could grant easements or construct improvements and encroach on adjacent property. The deed into the new Buyer could be fatally defective because of forgery or incompetence or any number of situations. Also, if a title defect arises that antedates the date of acquisition of the property by the Grantor to you, you would have to take action against the Grantor under the terms of the deed to you. In that case, as an insured, the title insurance company would represent the defendant in your action.
How does title insurance help protect my home investment?
It puts the assets of a corporation behind the title to your home. If it's attacked, the title will be defended without cost to you and if the title (or any part of it) should be defective, you'll be reimbursed up to the face amount of your policy for any financial loss incurred.
How does title insurance protect both me and my heirs and devisees?
A title insurance policy provides coverage from the time of its effective date back to the origin of title. After the property has passed to your heirs or devisees, if any defect antedating the policy should arise, the title insurance company would defend the title for your heirs and devisees just as it would for you if you were alive. Or, if the property were sold under a General Warranty Deed and the Buyer faced a claim arising within the effective term of the policy, the Buyer's action for recovery from you or your heirs would be taken over by the title insurance company according to the terms of the policy issued.
Do many people actually lose their homes because of title defects?
Not if they have title insurance! Title companies realize how important it is to homeowners to keep their homes. Therefore, when an insured title is found to be defective, the title company does everything possible to perfect the title. Often it is necessary to buy a claimant's right in the property and transfer them to the insured. This is practically always possible when only a partial interest is outstanding.
Are all titles insurable?
No. Some companies must turn down some applications. Just as fire insurance companies will not insure fire traps and life companies will not insure seriously ill people, some title companies will not insure a defective title. This is one of the great values of title insurance service. If the title is uninsurable, it is usually in such defective state that no prudent Buyer would want it. If the contract specifies that a sale is contingent upon good title being passed on to the Buyer, the Buyer is not obligated to purchase property with an uninsurable title.