WHAT IS TITLE INSURANCE?
Title Insurance is protection against loss if a covered defect is found in your title. Title insurance will pay for defending against any lawsuit attacking the title as insured, and will either clear up title problems or pay the insured’s losses, up to the policy insurance amount.
WHY IS IT NECESSARY?
When you buy a home, you are given a title to the property, which generally means you receive full legal ownership. But sometimes there is a hidden mistake in a prior deed, will, mortgage, etc., that may give someone else a valid legal claim against your property. Having title insurance provides a safety fence around your property.
WHO IS COVERED BY TITLE INSURANCE?
The Lender:
When you buy property, you are required to buy a Lender’s Policy for your lender. This covers the outstanding balance on the mortgage for the lender, but does protect you. This policy will protect the lender against loss due to unknown title defects.
The Buyer:
When purchasing property, it is a good idea to get your own Owner’s Policy. For a one-time premium, the policy remains in effect as long as you, the insured, or the insured’s heirs retain an interest in the property or have any obligations under a warranty in any conveyance of it. Owner’s title insurance, issued simultaneously with a loan policy, is the best title insurance value a property owner can get.
WHAT ARE SOME TITLE RISKS?
It will depend on the type of policy that you have. Typically it protects against four (4) hidden risks.
1. Errors Incorrect information contained in deeds, mortgages and public records. For instance, forged deed or release of mortgages, false impersonation of the true owner of the property, undisclosed or missing heirs and mistakes in recording legal documents.
2. Liens Claims against the property or the seller that become the new owner’s responsibility after the sale. For instance, there might be unpaid mortgages, taxes, sewer bills/liens, homeowners associations liens and bills owed to contractors or other creditors.
3. Ownership: Claims made against ownership. For instance, a claim to marital interest by the spouse of a former owner or by a child of a former owner who was not mentioned in his or her parents wills.
4. Deed Invalid transfer by a current or previous seller who did not actually own the property or fraudulently transferred the property.
WHAT ARE EXCEPTIONS?
Standard Exceptions:
Standard Exceptions are sometimes referred to as "general exceptions" or "standard exceptions". These exceptions are not revealed by public records. These are:
1. Rights or claims or parties in possession not shown by the public records.
2. Encroachments, overlaps, boundary line disputes, and any matters that would be disclosed by an accurate survey and inspection of the premises.
3. Easements or claims of easements not shown by the public records.
4. Any lien, or right to a lien, for services, labor, or material heretofore or hereafter furnished, imposed by law and not shown by the public records.
5. Taxes or special assessments that are not shown as existing liens by the public records.
Special Exceptions:
These are added exceptions to your policy and shown on Schedule B. This schedule contains recorded information about real estate taxes, easements, covenants and restrictions, voluntary liens or judgments, mortgages, and any interest another party might have in said property.
The title company may remove some exceptions for the Lender’s and/or Owner’s Policies, if requested. As long as all the parties produced the required elements to the company.
WHAT IS A TITLE SEARCH?
You’ve decided to purchase a home and hope to take possession as soon as possible. The terms have been agreed upon and all the financial arrangements have been made. But there is one important detail remaining. Before the transaction can close, a title search must be made.
It is a detailed examination of the historical records concerning the property. A title search is the process of determining from the public record just what these rights are and who owns them. Also, it is a determination of the person who is selling the property and has the right to sell it, and that the buyer is getting all the rights to the property (title) that he or she is paying for.
The search process can be undertaken by the title company and the title company must determine insurability of the title as part of the search process. This leads to the issuance of a title policy, which insures the existence or non-existence of rights to the property. The title insurance company will, at its own expense, defend the title and will pay losses within the coverage of the policy if they occur.
COMMITMENT:
When these searches have been completed, the title company issues a commitment to insure the proposed insures shown on the commitment. The two basic functions of the Commitment are that it discloses to the buyer or lender the status of the title. Second, it obligates the company to issue a final policy upon the closing of the transaction.
Also, the Commitment, when issued, remains in effect for a period of six months from the effective date. This period of time may be extended for additional periods of six months through the use of a Date Down Endorsement and a later date search.