TITLE INSURANCE: WHAT IS IT? WHY DO I NEED IT?

Two Types of Title Insurance:

There are two types of title insurance policies: Owners and Lenders.  While Lender’s Title Insurance protects the lender and not the homeowner, Owner’s Title Insurance, protects and insures you the homeowner. 

Owner’s  Title Insurance:

Specifically, Owner’s Title Insurance protects your legal ownership of the house or property you buy and guarantees you against defects in or claims against your title.  Many people think that once they have a “deed” they can be certain that the property is safely theirs. However, a deed shows that you own the property or that you have legal title to the property but it does not insure you against claims that are made after you buy the property.  Further, many people mistakenly think that since the title company did an abstract search of the public records, they have nothing to worry about. 

This is not true - occasionally, in spite of an exhaustive title search, hidden hazards can emerge after closing.  In spite of the thorough and diligent search of the public records which we will perform, there could still be title defects that can surface after you buy your home.  Some of these defects may include forged wills or deeds, conveyance by someone underage, fraudulent impersonations, undisclosed heirs, invalid foreclosures, false affidavits, defective recordation, mechanic liens or other liens from prior owners, unpaid taxes, tax liens, improper document execution, restrictive covenants, a married person conveying without their spouse, a mistake in the legal description, or other title defects that could jepordize losing one of the biggest investments you’ll ever make.  Only Owner's Title Insurance fully protects the buyer should a problem arise with the title that was not uncovered during the title search.

The good news is that unlike other forms of insurance, such as automobile or life insurance, title insurance involves a one-time premium, paid when you close the real estate transaction. So while you don’t have to make monthly, quarterly or yearly payments as you do with car and life insurance, you will have protection for as long as you own the property. Title insurance also differs from other types of insurance like medical and casualty insurance, because it protects you against events in the past as opposed to unpredictable future events.  Title insurance is a permanent protection that your ownership and use will be defended promptly against claims at no cost to you, whether the claim is valid or not. Owner's title insurance offers financial protection against these by negotiating with third-parties, and paying claims and the legal fees involved in defending the title.  Owner's title insurance is usually issued in the amount of the real estate purchase.  After closing we will send you a title insurance policy along with your recorded deed. You should keep this policy in a safe place. 

Reissue Rate:

Another benefit of having an Owner’s Title Insurance Policy is that if you refinance the same property in the future, you may be entitled to a Reissue Rate or discount on the lender’s title insurance policy which you will be required to purchase at the refinance settlement.  The discount you will get off of the new lender’s policy is substantial and can be as much as 40% off the price of the lender’s policy. 

Lender’s Title Insurance:

Lender’s Title Insurance Policy: The Loan Policy is usually based on the dollar amount of your loan. It protects the lender's interests in the property should a problem with the title arise. The policy amount decreases each year and eventually disappears as the loan is paid off.  The lender’s policy does not protect the homeowner.

Real Examples of Why You Need Title Insurance:

1.  Fraud & Forgery

(NAPS) — Those involved in real estate fraud and forgery can be clever and persistent which can spell trouble for your home purchase. In a western state, an innocent buyer purchased an attractive home site through a realty company, accepting a notarized deed from the seller. Then another couple, the true owners of the property—who lived in another locale—suddenly appeared and initiated legal action to prove their interest in the real estate was valid. Under the owner’s title insurance policy of the innocent buyer, the title company provided a money settlement to protect against financial loss. As it turned out, the forger spent time in advance at the local courthouse, searching the public records to locate property with out of town owners who had been in possession for an extended period of time. The individual involved then forged and recorded a deed to a fictitious person and assumed the identity of that person before listing the property for sale to an innocent purchaser, handling moot contracts through an answering service. Also, the identity of the notary appearing on deeds was fictitious as well. Fraud and forgery are examples of hidden title hazards that can remain undetected until after a closing despite the most careful precautions. Although emphasizing risk elimination, an owner’s title insurance policy protects financially through negotiation by the insurer with third parties, payment for defending against an attack on the title as insured, and payment of valid claims.

2.  Conflicting Wills

(NAPS) — Conflicts over a will from a deceased former owner may suggest a study topic for law school. But the subject can take on a reality dimension and all too quickly your home ownership is at stake.  After purchasing a residence, the new owner was startled when a brother of the seller claimed an ownership interest and sought a substantial amount of money as his share. It seemed that their late mother had given the house to the son making the challenge, who placed the deed in his drawer without recording it at the courthouse. Some 20 years later, after the death of the mother, the deed was discovered and then filed. Permission was granted in probate court to remove the property from the late mother’s estate, and the brother to whom the residence initially was given sold the house. But the other brother appealed the probate court decision, claiming their mother really did not intend to give the house to his sibling. Ultimately, the appeal was upheld and the new owner faced a significant financial loss. Since the new owner had acquired owner’s title insurance upon purchasing the real estate, the title company paid the claim, along with an additional amount in legal fees incurred during the defense.

3.  Missing Heirs

(NAPS) - When buying a home, it's important to remember what you don't know can cost you.

As an example illustrating the need for precautions, The American Land Title Association pointed to a couple who purchased a residence from a widow and her daughter, the only known heirs of the husband and father who died without leaving a will. Soon after the sale, a man appeared - claiming he was the son of the late owner by a former marriage. As it turned out, he indeed was the son of the deceased man. This legal heir disapproved of his father's remarriage and had vanished when the wedding took place. Nonetheless, the son was entitled to a share of the value of the home, which meant an expensive problem for the unwary couple purchasing the property.

Although the absence of a will hindered discovery of the missing heir in a title search of the public records, ALTA said that owner's title insurance issued at the time of the real estate transaction would have financially protected the couple from the claim by the missing heir. For a one-time charge at closing, owner's title insurance will safeguard against problems including those even an exhaustive search will not reveal.

Title Insurance and New Construction:

I'm buying a newly built home, do I need title insurance?

Construction of a new home raises special title problems for the lender and owner. You may think you are the first owner when constructing a home on a purchased lot. However, there were most likely many prior owners of the unimproved land. A title search will uncover any existing liens and a survey will determine the boundaries of the property being purchased. In addition, builders routinely fail to pay subcontractors and suppliers. This could result in the subcontractor or supplier placing a lien on your property. Again, lenders want to be sure the property has clear title, and they are insuring the correct property. Purchasing owner's title insurance will protect you against these potential problems and pay for any legal fees involved in defending a claim.                                               

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