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.

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.

WHAT EXACTLY IS INVOLVED IN A TITLE SEARCH?

CHAIN OF TITLE:
This is simply a history of the ownership of a particular piece of property, telling who bought it, sold it and when. The information may be derived from public records, usually a County Clerk’s or Recorder’s Office or obtained from title plants.

TAX SEARCH:
This is a search to determine the present status of general real estate taxes against the property. The tax search will reveal if taxes are current or whether any taxes are past due and unpaid from previous years. In addition, the tax search will indicate the existence of any special assessments against the land and if so, whether or not these assessments are current or past due. Title insurance protects the buyer against loss from unpaid and past due taxes and assessments.

REPORT ON POSSESSION:
The purpose of this is to supplement the information learned from the title search. In the eyes of the law, any buyer of real estate is assumed to have notice of all matters properly shown in the public records as to that real estate as well as any information that an actual inspection may reveal.

If the examiner detects an unrecorded easement or other evidence of outstanding rights that could affect the owner’s title and possibly the value and intended use, the company tells the buyer of these things before he or she closes the purchase. Those matters must then either be disposed of or shown as exceptions in the title insurance policy. Sometimes when an acceptable survey and appropriate affidavits are received, an inspection will not be made.

JUDGMENT AND NAME SEARCH:
One of the most important parts of the title search is to determine if there are any unsatisfied judgments against the seller or previous owners which were in existence while they owned the title. A judgment is a general lien against the debtor’s real estate and constitutes security for any money owed under the judgment. The real estate can be sold to satisfy the judgment.

It is extremely important to be sure that a title is not subject to judgments against the seller or previous owners. Title insurance provides this protection.

Rights established by judgment decrees, unpaid federal income taxes and mechanic’s liens all may be prior claims on the property, ahead of the buyer’s or lender’s rights. If a judgment is discovered that constitutes a defect in the title, it is pointed out and the seller must then eliminate it before the title of the new buyer can be insured free and clear of that judgment.

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.