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 safe keeping of their homes by insuring them against hazards such as fire, theft and weather damage.
But there is another hazard that can pose and even greater risk to home ownership: Defects in the title to your property can cause you to lose part or all of the investment in your home. Fortunately, there is a way to protect our investment from these title defects. It comes in the form of title insurance. Below, we’ve listed the answers to the most commonly asked questions regarding title insurance.
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.
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 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 the use of the land.
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 possibly 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’ve purchased your home and can jeopardize your right to ownership.
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 aren’t 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.
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.
Not necessarily. A deed is just a document by which the right of ownership in land is transferred, whatever that right may be. It’s not proof of ownership, and it doesn’t do away with rights others may have in the property. In addition, a deed won’t show you liens or claims that may be outstanding against the title.
Maybe – and maybe not. An abstract is a history of the property title as revealed by the public records. Abstracts may contain errors and do not disclose “hidden hazards” that can threaten your property title if you do not have a title insurance policy.
An attorney’s opinion is based on a search of the public records. So, once again, even the most exhaustive search of these records may not reveal everything. Unlike a title insurance company, an attorney is not liable if you should suffer loss because of “hidden hazards” in the title.
Because the owner could, in a very short time, do many things to encumber the title. For example, he could grant easements or construct improvements that encroach on adjacent property. He could get married or divorced, or have a lien filed against the property. If is necessary to conduct an up-to-date title search to uncover any such problems.
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.
Yes. Basically there are two different types of policies – a loan policy and an owner’s policy. The loan policy protects the lender’s interested 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. (title insurers in many states offer increased policy coverage through inflation endorsements to cover increases in value due to inflation.)
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 premium is paid one time only, usually at settlement.
From any licensed title insurance company or its representatives operating in your state. When choosing a title insurer, it is important that you look for a company with expertise and experience, as well as the financial strength to protect you should a claim arise. Your broker or attorney can recommend such a company.
Your title insurance policy contains terms and conditions that may limit or restrict coverage. Consult your attorney for specific advice regarding your legal rights, and consult your real estate professional when selling or purchasing a home.