Title Insurance. It’s a term we hear and see frequently — we see reference to it in the Sunday real estate section, in advertisements and in conversations with real estate brokers. If you’ve purchased a home before, you’re probably familiar with the benefits and procedures of title insurance. But if this is your first home, you may wonder, “Why do I need another insurance policy? It’s just one more bill to pay.”

The answer is simple: The purchase of a home is most likely one of the most expensive and important purchases you will ever make. You, and your mortgage lender, want to make sure that the property is indeed yours —lock, stock and barrel —and that no individual or government entity has any right, lien, claim to your property.

Title insurance companies are in business to make sure your rights and interests to the property are clear, that transfer of title takes place efficiently and correctly and that your interests as a homebuyer are protected to the maximum degree.

Title insurance companies provide services to buyers, sellers, real estate developers, builders, mortgage lenders and others who have an interest in a real estate transfer. Title companies routinely issue two types of policies — “owner’s,” which cover you, the homebuyer; and “lender’s,” which covers the bank, savings and loan or other lending institution over the life of the loan. Both are issued at the time of purchase for a modest, one-time premium.

Before issuing a policy, however, the title company performs an extensive search of relevant public records to determine if anyone other than you has an interest in the property. The search may be performed by title company personnel using either public records or more likely, information gathered, reorganized and indexed in the company’s title “plant.”

With such a thorough examination of records, any title problems usually can be found and cleared up prior to your purchase of the property. Once a title policy is issued, if for some reason any claim which is covered under your title policy is ever filed against your property, the title company will pay the legal fee involved in defense of your rights, as well as any covered loss arising from a valid claim. That protection, which is in effect as long as you or your heirs own the property, is yours for a one-time premium paid at the time of purchase.

The fact that title companies work to eliminate risks before they develop makes the title insurance decidedly different from other types of insurance you may have purchased. Most forms of insurance assume risks by providing financial protection through a pooling of risks for losses arising from an unforeseen event, say a fire, theft or accident. The purpose of title insurance, on the other hand, is to eliminate risks and prevent losses caused by defects in title that happened in the past. Risks are examined and mitigated before property changes hands.

This risk elimination has benefits to both you, the homebuyer, and the title company: it minimizes the chances adverse claims might be raised, and by so doing reduces the number of claims that have to be defended or satisfied. This keeps costs down for the title company and your title premiums low.

Buying a home is a big step emotionally and financially. With title insurance you are assured that any valid claim against your property will be borne by the title company, and that the odds of a claim being filed are slim indeed. Isn’t sleeping well at night, knowing your home is yours, reason enough for title insurance?

This article was published by the California Land Title Association.

Title insurance is actually a process, with the insurance policy being the end product. This process starts with a comprehensive search of public records to determine if any liens or other encumbrances are attached to the title. During the search, detailed information from potentially hundreds of sources is gathered and reviewed, including tax records, federal, state and local records, court judgments, deeds and an evaluation of whether the property characteristics are accurately reflected by the information on the title. Not surprisingly, one in four title searches uncovers some problem that must be rectified prior to the close.

What kind of problems? There are four primary categories that can cloud a title and result in significant risk for a prospective home buyer. The title search meticulously seeks out and evaluates any known indication of any of these issues; however, even the most comprehensive search may not uncover every hidden area of title risk:

• Liens can be placed against a title by any party with an unpaid financial obligation against the property owner. The nature of these claims can be everything from unpaid child support or alimony to unpaid parking tickets, taxes or bills from contractors like electricians or plumbers.
• Errors may have occurred during the course of previous ownership changes that could have included recording errors, typographical errors, incorrect legal descriptions, incorrect indexing of land records or title search errors resulting from undisclosed issues like unsatisfied claims not shown in the public record.
• Claims against a property may come from missing heirs or heirs born after the execution of a will, the dower or courtesy rights of spouses of former owners, claims from ex-spouses or even from government or corporate entities. They can also arise when the mental competence of a grantor of deed is called into question; when wills are not properly probated or are misinterpreted; when a title was transferred by a minor; or when a grantor of a deed did so while under undue influence.
• Fraudulent activity such as forged signatures or fraud in the execution of documents, the use of false powers of attorney in the execution of documents, false impersonation by someone claiming to be the owner of the property or any other fraudulent activity can invalidate any title work that occurred from that point on.

 

Prospective buyers should be certain they know what issues affect the title of the property they plan to buy and recognize that even new construction properties can be subject to these same kinds of problems. Buyers should make sure that all issues that come to light from the title search are adequately resolved prior to the closing.

What does title Insurance cover? Once the title search has been concluded and curative work to resolve any issues has been completed, title insurance can then be issued. The title insurance policy protects policy owners against covered financial losses associated with claims against the title that were not discovered during the title search process. It also insures against the title being rejected by the subsequent buyer of your property due to pre­existing title defects and covers losses that may arise after the property is sold if title covenants were included in the  sales contract. This includes attorney fees and costs associated with defending the title and insures that the policy holder is the legal owner and has access to the property. Since the final title insurance policy may have some coverage exceptions (such as conditions, utility and other easements or set-back requirements), policy owners must carefully read the coverage information for their specific policy provisions.

Who Is covered by title Insurance? There are two different kinds of title insurance policies, and each covers a specific type of policy owner:

Lender’s (or Loan) title policies are required by lenders and paid for by the borrower(s) at the closing. However, these policies only protect the lending institution in the event a title problem is later uncovered and causes a financial loss. Lender title insurance covers institutions up to the amount of the mortgage loan associated with the property, but makes no provision for the borrower’s losses.

• Owner’s Title policies are not required for home buyers, and in many jurisdic-tions an Owner’s policy is not offered during the mortgage process. As a result, home buyers are left without title risk coverage and often don’t know they had a choice. Without an Owner’s policy, home buyers must pay for title curative work out­of-pocket and the equity they have in their property can be at risk. However, with an Owner’s title insurance policy in effect, the homeowner’s investment is fully protected since the policy usually covers buyers up to the full sale price.

Lender’s title policies and Owner’s title policies cover many of the same things. In both cases, the policy holders are protected from title risks such as title search errors, claims by missing heirs or ex-spouses, forged signatures in the chain of title and many other title problems that could go undetected before the close. Attorney fees and settlement costs are also covered up to the policy’s limit. What does title Insurance cost? Many states set the rates for title insurance and major lenders may be able to secure volume-based rates for their borrowers. Home buyers should always feel free to shop policy coverage and rates before making their final choice.

Unlike other types of insurances that require ongoing payments, title insurance covers things that happened in the past (prior to the closing) that could affect the status of the property’s title. There is a one time cost for title insurance at the time of the closing and the policy is good for as long as home buyers or their heirs own the property.

How Is title Insurance regulated? Each state has a department of insurance that generally regulates all forms of insurance, including title insurance. These governmental bodies are responsible for establishing and enforcing regulations for insurance sold in their respective states.

A TIME-TESTED PROFESSION Unlike many countries around the world, the United States has a time-tested, extensive system of maintaining public land records that gives property owners an unmatched level of confidence in their ownership status. But the system only works because of the extensive research and corrective actions that are taken to maintain the integrity of property titles. Home buyers should ask about the title insurance options available to them and feel free to discuss the provisions and exceptions of any title insurance coverage they might be considering. Whatever they ultimately decide about title insurance, it should always be an informed choice.

What Is Title Insurance?

A title insurance policy protects a real estate owner or lender against any loss or damage they might experience because of liens, encumbrances, or defects in the title to said property, or the incorrectness of the related search.

How Does Title Insurance Differ From Casualty Insurance?

Casualty Insurers (car, life, health, etc.) assume risk for future events, collecting monthly or annual premiums. A title policy insures the past of the real property and the people who owned it, for a one­time premium paid at the close of escrow.

Your Ownership of Real Estate

Real estate has always been considered man’s most valuable possession. It is so basic a form of wealth that many special laws have been enacted to protect ownership of land and the buildings which stand on the land. You should realize whenever you buy property that the owner who is selling it to you has extremely strong rights as do his family and heirs. Also, there may be others – in addition to the owner – who have “rights” in the property you are going to buy, perhaps governmental bodies, or contractors, for example.

Some of the things a title search uncovers are any unpaid taxes or mortgages judgments against previous owners, easements, and many other court actions or recorded documents which can affect title to real estate. We find and report such defects in the title to the real estate you wish to buy, so that these matters can be corrected and cleared up. It is the first benefit you receive when title insurance is ordered.

How Is A Title Policy Created?

After the escrow officer or lender opens the title order, Fidelity begins a search of the public records including the County Recorder, Federal and State Agencies, and County and City Offices. A Preliminary Report is issued to the customer for review and approval. All closing documents are  recorded upon escrow’s instruction. When recording has been confirmed, demands are paid, funds are disbursed, and the actual title policy is typed and sent to the insured.

Protecting You Against Hidden Risks

Protection against loss from claims on real estate which cannot be discovered by examination of the public records is the second part of the two-fold benefit provided by Fidelity National Title.

How Does a Title Insurance Policy Protect Against These Dangers?

If a claim is made against your title as covered by your policy, Fidelity National Title protects you by:

1.  Defending your title, in court if necessary, at our expense.
2.  Bearing the cost of settling the claim if it proves to be valid, in order to perfect your title and keep you in possession of your property.

 

What Types Of Policies Are Available?

A standard CLTA ‘Owners’ policy insures the new owner, the home buyer and an ALTA or CLTA ‘Lenders’ policy insures the priority of the lender’s security interest. An extended coverage ALTA-R (residential) policy to owners of 1-4 unit property is also offered. The ALTA Homeowner’s Policy is for owners of 1-4 unit properties as well and expands the number of covered title risks to 29, including certain specified risks that may arise in the future. Fidelity issues this extended coverage automatically on qualifying properties. Special Binders, Guarantees and Endorsements are also available.

Who Needs It?

Purchasers and lenders need title insurance to know the property they are involved with is  insured against various possible title defects. Whether it’s a sale, refinance, construction loan…the seller, buyer and lender all benefit.

Pay Only Once

Unlike other forms of insurance, the original premium is your only cost as long as you own the property. There are no annual payments to keep your Owners Title Insurance Policy in force.