Why do I need Title Insurance?
Title Insurance provides peace of mind when you purchase real estate and insures there are no potential problems with the your ownership interest to be sure that there are no problems with the home’s title and that the seller really owns the property.
What is Title Insurance?
Title insurance is a product developed and sold in the United States as a result of an alleged comparative deficiency of the U.S. land records laws. It is meant to protect the homeowner’s and lender’s financial interest in real property against loss due to title defects, liens or other matters. Your title policy will defend against a lawsuit attacking the title as it is insured, or reimburse the insured for the actual monetary loss incurred, up to the dollar amount of insurance provided by the policy.
There are two types of policies – owner and lender. Just as lenders require hazard insurance and other types of insurance coverage to protect their investment, nearly all institutional lenders also require title insurance [a loan policy] to protect their interest in the collateral of loans secured by real estate. Buyers purchasing properties for cash or with a mortgage lender often want title insurance [an owner policy] as well.
What is a title search
A title search or property title search is the process of retrieving documents evidencing events in the history of a parcel of real property. The documents are retrieved to determine interest and regulations concerning that property. In the case of a prospective purchase of real property, a title search is performed primarily to answer the following questions:
- Does the seller have the right to sell? Are there any other interested parties?
- What kind of restrictions or allowances pertain to the use of the land?
- Has the property been conveyed properly throughout the years?
- Do any liens exist on the property that are required to be paid at closing? Examples: Mortgages, Mechanics Liens, Municipal Liens (IE: sewer, water, electric, etc.), Upper Court Judgments (IE: child support, public defender liens, hospital liens, federal or state liens, etc.).
What does a Title Search Include?
A Title Search includes: A search of the history of the property, the owners of record, any liens or clouds on title and documents filed by legal description. Search the seller for liens at the county, municipal and upper court levels.
What danger of loss can you face?
If a lender has title insurance protection and you do not, what possible danger of loss can you face? For example, a purchase of property is made in the amount of $200,000. The equity investment or down payment is $40,000, leaving a loan amount of $160,000. But your equity of $40,000 is not covered. What if some matter arises affecting the past ownership of the property? The title insurance company would only defend and protect the interest of the lender. The owner/borrower would have to assume the financial burden of the legal defense. If the legal defense is not successful, the result could be a total loss of title. The title insurance company pays the lender’s loss and is entitled to take an assignment of the borrower’s debt. The borrower loses the down payment, any other equity that may have accumulated, and the property. The balance of the note is still owed.
How can there be a title defects if the title has been searched and a loan policy issued?
Title insurance is issued after careful examination of public records. But even the most thorough search cannot absolutely assure that no title hazards are present, despite the knowledge and experience of professional title examiners. In addition to matters shown by public records, other title problems may exist that cannot be disclosed in a search.
Following are a few of the most common hidden risks that can cause a loss of title or create an encumbrance on title:
- False impersonation of the true owner of the property
- Forged deeds, releases or wills
- Undisclosed or missing heirs
- Instruments executed under invalid or expired power of attorney
- Misinterpretations of wills
- Deeds by persons of unsound mind
- Deeds by minors
- Deeds by persons supposedly single, but in fact married
- Liens for unpaid estate, inheritance, income or gift taxes
What protection does title insurance provide against defects?
Title insurance will pay for defending against any lawsuit attacking your title as insured, and will either clear up title problems or pay the insured’s losses. For a one-time premium, an owner’s title insurance policy remains in effect as long as you, or your heirs, retain an interest in the property or have any obligation under warranty in any conveyance of it.