Title insurance is a type of protection afforded to someone who is purchasing a property, as well as a mortgage lender. This is protection against defects or problems with a title when a person is purchasing a home. Title insurance protects the buyer against losses if there is something in the property title that is:
- Insufficient; and/or
Additionally, some title insurance documents protect the sellers against misrepresentations or breaches of sales contracts by the buyer.
The first main type of title insurance that is generally purchased would be the owner’s policy. This policy protects the new property owner. The second main type of title insurance is the lender’s policy, which protects the lender.
The purpose of the title insurance is to protect both the purchaser and the lender against a potential loss or liability, if there is a mistake or issue associated with the documentation or the process of title transfer for the property.
Obtaining title insurance is a standard step in most real estate transactions. To reiterate, there are different types of title insurance available to protect the purchaser and the lender from litigation. An example of this would be if the seller does not actually have free and clear ownership of the property.
Most lenders require the buyer to obtain title insurance. The buyer only pays for the title insurance one time, and it remains in effect until they sell the property. It will also remain in effect until the buyer needs to refinance the property.
Title insurance allows the protected party to recover title insurance benefits if certain terms are breached. It is important to note that the exact nature of the coverage will vary in each situation. Additionally, as in most real estate transactions, title insurance terms are generally fully negotiable in order to fit the needs of each party.
What Does Title Insurance Cover?
To reiterate, the exact nature of title insurance will vary in each situation, as title insurance terms are generally negotiable in order to meet the needs of each party. Generally speaking, the most basic service that title insurance provides for buyers is that it helps protect against instances in which the seller does not actually have title to the land.
When this happens, the title is never transferred to the buyer. This has the effect that they do not end up owning the land. This can happen intentionally, such as through fraud, or unintentionally, such as when the seller was never given a valid title to begin with.
Additionally, title insurance can protect against specific violations and breaches of sales contracts. However, this is dependent upon the individual agreement between buyer, seller, and their insurance companies.
Having a well-founded title insurance program can influence the atmosphere of a sales negotiation from being less open to being more cooperative, in which information is exchanged freely and openly. Title insurance issues can also present themselves during a title search, due to the fact that a title search will generally indicate whether or not insurance was used during a particular transaction.
What Is A Title Search?
A title search, also known as a property title search, is a process involving reviewing files from the county records department. This is done in order to see a particular property title’s ownership history. The search is generally conducted by a commercial agent, such as a title company, a real estate attorney, or an escrow officer.
The types of records that are being examined include, but may not be limited to:
- Court records;
- Name indexes; and
- Property indexes.
The purpose of a title search is to confirm that the seller is the actual and legal owner of the property that is being sold. A title search also helps ensure that the title is not clouded by a defect, which could reduce the value of the land. A clouded title would also subject the buyer to some sort of legal liability.
Some examples of factors that can cloud a title, causing a title defect, include but may not be limited to:
- When the property has either a mortgage lien or unreleased lien attached to it;
- There are pending probate issues associated with the property;
- A home is part of a foreclosure action;
- The title to the property is fraudulent or forged; and
- There are defects or errors contained within the chain of title.
A title search is also conducted in order to ensure there are no other potential issues, which may include:
- Undisclosed heirs;
- Omissions on the property deed;
- Unknown liens placed on the property; and/or
- Any fraud related to the property deed.
Additionally, if a buyer has title insurance, the agent who is conducting the search will need to determine whether the title insurance company will insure the title as part of the search process.
What Is The Title Insurance Process?
Before the buyer obtains title insurance, the first step to purchasing a home is to ensure that the home or property is legally available to be sold and purchased. As previously mentioned, title searches are currently conducted as part of a standard real estate transaction, in order to reduce any issues associated with the purchase.
The seller is required to have free and clear ownership of the property before they can sell the property. What this means is that the seller can rightfully and legally transfer full ownership of the property to the buyer.
If a title search comes up clean, this means that the seller has the legal right to sell and transfer ownership to the buyer.
Generally speaking, a buyer does not conduct a title search or find title insurance. The attorney or real estate agent that the individual hires should initiate the process. In most cases, the attorney’s office will handle the title search. Either the attorney or the real estate agent will choose the title insurer.
The cost of title insurance varies, and is generally paid as a one-time fee as part of the buyer’s closing costs. The cost of title insurance can range from a few hundred dollars to a few thousand dollars. However, if an issue arises, the title insurance covers the legal expenses for investigating a claim, litigation, or settling an adverse claim against the title.
What If I Have A Dispute Associated With Title Insurance?
Title insurance is generally intended to prevent conflicts from arising in a home sales transaction. However, it can sometimes be a source of conflict itself. Such conflicts are generally between the buyer and seller, or may be between the insured and the insurer. Disputes over title insurance can generally be minimized by having a lawyer present during negotiations, including negotiations both for the sale of the home and when finalizing an insurance package.
One of the most common disputes associated with title insurance would be what the insurance will actually cover. This is largely due to the fact that some insurance policies do not actually cover the entire home sales. Rather, these title insurance packages only protect against specific legal issues, such as the existence of a lien on the home. Because of this, it is important to know exactly what your title insurance will cover.
Additionally, because home sales nearly always involve a mortgage, the title insurance can involve both the mortgage borrower and the mortgage lender. You should ensure that you understand how the title insurance will affect your interaction with a mortgage company, if it will have any effect at all.
Do I Need An Attorney For Title Insurance?
If you are buying or selling a home, you should work with an experienced and local real estate lawyer. An attorney will be most familiar with your state’s laws regarding the matter, and can ensure your title insurance is sufficient for your specific needs.
Additionally, your real estate attorney will also be able to represent you in court, as needed, should any further legal issues or disputes arise that require a court’s attention.