Buying a home is, for many of us,
the biggest single investment we'll ever make. Knowing this, most
homeowners provide for the security and safe keeping of their
homes by insuring them against hazards such as fire, theft and
weather damage.
But there is another hazard that can pose and even greater risk
to homeownership: Defects in the title to your property can cause
you to lose part or all of the investment in your home.
Fortunately, there is a way to protect our investment
from these title defects. It comes in the form of title insurance.
What is title insurance and why do you need it? In
the following pages, we've listed the answers to these and other
commonly asked questions.
We suggest that you read through this information
carefully. It will help you to better understand the value of
title insurance in protecting your homeownership. And the general
real estate information will help make the home-buying process
a smoother one.
What is a title?
A title is the foundation of property ownership. It
is the owner's right to possess and use the property.
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Why is transferring the
title to real estate different from transferring the title to
other items, such as a car?
Because land is permanent and can have many owners
over the years, various rights in land may have been acquired
by others (such as mineral, air or utility rights) by the time
you come into possession of it, even if the land has never before
been built upon. So in order to transfer a clear title to a piece
of land, it is first necessary to determine whether any rights
are outstanding. Back to
the top
What is a title search?
A title search is a detailed examination of the historical
records concerning a property. These records include deeds, court
records, property and name indexes, and many other documents.
The purpose of the search is to verify the seller's right to transfer
ownership, and to discover any claims, defects and other rights
or burdens on the property.
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What kinds of problems
can a title search reveal?
A title search can show a number of title defects
and liens, as well as other encumbrances and restrictions. Among
these are unpaid taxes, unsatisfied mortgages, judgments against
the seller and restrictions limiting the use of the land.
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Are there any problems
that a title search cannot reveal?
Yes. There are some "hidden hazards" that
even the most diligent title search may never reveal. For instance,
the previous owner could have incorrectly stated his marital status,
resulting in a possibly claim by his legal spouse. Other "hidden
hazards" include fraud and forgery, defective deeds, mental
incompetence, confusion due to similar or identical names and
clerical errors in the records. These defects can arise after
you've purchased your home and can jeopardize your right to ownership.
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What is title insurance?
Title insurance is your policy of protection against
loss if any of these problems - even a "hidden hazard"
- results in a claim against your ownership.
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How much could
I lose if a claim is filed against my property?
That depends on the claim. In an extreme case, you
could lose your entire home and property - and still be liable
to pay off the balance of your mortgage. Most claims aren't that
dramatic, but even the smallest claim can cost you time, money
and aggravation, and you may have to pay costs for a legal defense.
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How does title
insurance protect my investment if a claim should arise?
If a claim is made against your property, title insurance
will, in accordance with the terms of your policy, assure you
of a legal defense - and pay all court costs and related fees.
Also, if the claim proves valid, you will be reimbursed for your
actual loss up to the face amount of the policy.
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The owner of the
property has a deed. Isn't that proof of ownership?
Not necessarily. A deed is just a document by which
the right of ownership in land is transferred, whatever that right
may be. It's not proof of ownership, and it doesn't do away with
rights others may have in the property. In addition, a deed won't
show you liens or claims that may be outstanding against the title.
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Wouldn't an abstract
show property limitations and restrictions?
Maybe - and maybe not. An abstract is a history of
the property title as revealed by the public records. Abstracts
may contain errors and do not disclose "hidden hazards"
that can threaten your property title if you do not have a title
insurance policy. Back to
the top
What about an
attorney's opinion?
An attorney's opinion is based on a search of the
public records. So, once again, even the most exhaustive search
of these records may not reveal everything. Unlike a title insurance
company, an attorney is not liable if you should suffer loss because
of "hidden hazards" in the title.
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The owner of
the property I want to purchase has lived in the home for only
six months. He had a title search done six months ago. Why do
I need another one?
Because the owner could, in a very short
time, do many things to encumber the title. For example, he could
grant easements or construct improvements that encroach on adjacent
property. He could get married or divorced, or have a lien filed
against the property. If is necessary to conduct an up-to-date
title search to uncover any such problems.
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If the builder
of my home already has title insurance on the property, why do
I need it again when I purchase the land from him?
A title policy insuring the builder does not protect you. Also,
a great many things could have happened to the land since the
builder's policy was issued. Liens, judgments and unpaid taxes
for which prior owners were responsible may be disclosed after
you purchase the property - causing you aggravation and costing
you money. Back to the top
Are there different
types of title insurance policies?
Yes. Basically there are two different types of policies
- a loan policy and an owner's policy. The loan policy protects
the lender's interested in the property as security for the outstanding
balance under the buyer's mortgage. The owner's policy safeguards
the buyer's investment or equity in the property up to the face
amount of the policy. (title insurers in many states offer increased
policy coverage through inflation endorsements to cover increases
in value due to inflation.)
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How much does
title insurance cost?
Probably a lot less than you think. Charges vary in
different sections of the country, but generally the cost of title
insurance (including search, examination and related services)
amounts to about one percent, or less, of the cost of the property.
And unlike other insurance premiums, which must be paid annually,
a title premium is paid one time only, usually at settlement.
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How long does
my coverage last?
For as long as you or your heirs retain an interest
in the property an, in some cases, even beyond.
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Where can I get title
insurance?
From any licensed title insurance company or its representatives
operating in your state. When choosing a title insurer, it is
important that you look for a company with expertise and experience,
as well as the financial strength to protect you should a claim
arise. Your broker or attorney can recommend such a company.
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Your title insurance policy contains
terms and conditions that may limit or restrict coverage. Consult
your attorney for specific advice regarding your legal rights,
and consult your real estate professional when selling or purchasing
a home. Back to the top
