What is Title Insurance?
You’re probably familiar with homeowner’s insurance. It protects you against the possibility of future events such as fire or flood. Title insurance is similar in that it protects your home investment, but it protects you against loss from defects that already exist in the title, should your legal rights to your property be challenged. Those hazards could include outstanding mortgages, liens, easements or pending legal action.
How do I get Title Insurance?
The process of getting title insurance starts with a search of property records to eliminate risk and uncover any title defects before issuing insurance. If any defects are found, your title company would work to correct them whenever possible. Then upon closing, you would be issued a ‘clean title’ to the property. However, even with the best searches, hidden hazards (such as a forged signature or an unknown heir) can pop up after closing. That’s when title insurance comes into play, to protect you as long as you have a financial interest in the insured property. The title insurer pays for defending against an attack on your title as insured, and will either perfect the title or pay valid claims.
What is Title?
The word title is a collective term for all your legal rights to own, use, and dispose of land. Title includes all previous ownership, uses, and transfers. To legally transfer real estate property, a title search must be performed and, in most cases, the title must be found free of any circumstances that could endanger your rights of ownership.
What types of title insurance are there?
Two types: a lender’s policy and an owner’s policy.
What does a lender’s policy cover?
The lender’s policy protects the lender’s interest in the property for the amount of the mortgage loan.
What does an owner’s policy cover?
An owner’s policy protects the home buyer’s interest in the property against such hidden hazards as:
- Mistakes in recording of legal documents
- Forged deeds, releases, or wills
- Undisclosed or missing heirs, including spouses
- Deeds by persons of unsound mind
- Deeds by minors
- Deeds executed under an invalid or expired power of attorney
- Liens for unpaid taxes
For a one-time premium paid during the closing process, your title insurer assumes responsibility for all legal expenses to defend the title to your property if it is ever challenged. If the defense is unsuccessful, you are reimbursed for any reduction in the value of the land. For the home buyer, it is a small cost for huge peace of mind.
What are concurrent policies?
When an owner’s and a lender’s policy are issued at the same time, or concurrently, the premium is less expensive than if the two polices are issued separately. Since the title insurance company only has to search the records one time, and because a concurrent policy doesn’t increase the risk that much, the concurrent policy premium will generally cost about one third less than two separate policies – remember costs vary depending on location.
How long does title insurance coverage last?
A lender’s policy lasts until the mortgage is paid in full. An owner’s policy remains in force as long as you or your heirs have an interest in the property. If challenges to title arise after the property has passed to your heirs, the title insurance company would defend the title for them as it would for you.
What is a Title Search?
It is a detailed examination of all available public records on a property to verify the seller’s right to transfer ownership and to uncover any potential challenges you might face. A title search should reveal such things as unpaid taxes, unsatisfied mortgages, and judgments against the seller. However, even the diligent search may fail to reveal some hidden hazards, such as those mentioned earlier, and that is when title insurance comes into play.
How do I find out what claims exist?
In order to determine the status of title, Penn National Abstract will conduct a diligent search of the public records for those documents associated with the property and examine them in order to determine if there are any rights or claims that may have an impact upon the title to the property. The title search may reveal the existence of recorded defects, liens or encumbrances upon the title such as unpaid taxes, unsatisfied mortgages, judgments and tax liens against the current or past owners, easements, restrictions and court actions. These recorded defects, liens and encumbrances are reported to you prior to your purchase of the property. Once reported, these matters can be accepted, resolved or extinguished prior to the closing of the transaction. With title insurance, you are protected against any recorded defects, liens or encumbrances upon the title that are unreported to you and which are within the coverage of the particular policy issued in the transaction.
What about undiscovered claims?
The title to the property that you have purchased could be seriously threatened or lost completely by hazards which are considered “hidden risks.” “Hidden Risks” are those matters, rights or claims that are not shown by the public records and, therefore, are not discoverable by a search and examination of those public records. Matters such as forgery, incompetency or incapacity of the parties, fraudulent impersonation, and unknown errors in the records are examples of “hidden risks” which could provide a basis for a claim after you have purchased the property. Penn National provides insurance to protect you against this possibility.
How long does a title search take?
A title company examiner searches the records of the county recorder, county assessor, and other government taxing agencies to locate any documents which might affect the title to a given property. Depending on the number of documents the examiner must review, a title search will take anywhere from one hour to two weeks to complete. Read this search carefully and look for any hidden problems.
What is an Attorney’s Opinion of Title?
In some states, attorneys examine the recorded documents relating to title and issue what is referred to as a “Statement of Opinion.” This statement outlines the details of the attorney’s search, which records were examined, and what encumbrances exist against the title. The attorney’s opinion of title does not insure against undisclosed defects nor does it insure marketable title. You still need title insurance to cover these defects.
Under a policy of title insurance you are insured for losses due to defects in the title, subject to any exceptions stated in the policy. Under an attorney’s statement of opinion you would have to sue the attorney if a negligent mistake was found and prove that the negligence caused you to suffer losses. That’s why title insurance is so valuable.
Who determines title insurance rates and fees?
Buyers and sellers often accept these charges without question, accepting the fees as set forth by the title company or closing agent. But title insurance fees are not all alike. The fees may vary from state to state, and may not be set by law in every state. In many states, each title company may set its own rates and then will file those fees with the state insurance commissioner. Once filed, those fees must be adhered to. The key is to ask at the beginning of your escrow what the charge will be, and if your closing agent is charging the lowest rate allowed by state law. Many title companies combine the title insurance premium together with the closing, search and exam fees.
Are there exceptions to title insurance?
Yes, certain exceptions from coverage are a standard practice, but you should be aware of which items are exempted and therefore not covered. Owner’s policies usually contain a list of some of the following standard exceptions:
- boundary line disputes
- easements or claims of easements not shown in the public records
- taxes or special assessments left off the public record
- claims of people who turn out to be living in the house ( such as a prior owner’s tenants) if their being there isn’t a matter of public record
- unrecorded mechanic’s liens
- mineral and/or water rights
You have the option of paying an additional fee to obtain “extended coverage” for any items you want included in your policy. Your title officer can tell you which endorsements are available. Other exceptions which are generally excluded from coverage include zoning, environmental protection laws, matters arising after the effective date of the policy, and matters created, suffered, or assumed by the insured. Some other exceptions could be subdivision and building codes, and matters known to the insured, but not shown on the public records and not disclosed to the insurer.
Go over your title policy carefully to see what is included and which items are to be excluded from coverage. If you find items of concern, discuss these with your escrow agent or closing attorney. Any changes to the policy of title insurance should be made as soon as possible and before the close of escrow.
Will title insurance cover protection for eminent domain?
Eminent domain, or the government’s right to take land for the public good is not covered by title insurance. At this time, there are no special endorsements which can be purchased to protect against this governmental right.
Is title insurance required by law?
Title insurance is not required by law, however almost all lenders will require a lender’s title insurance policy as a condition of making their loan to protect their interests. In addition, buyers should always insist upon an owner’s title policy to protect their equity in the property. Local custom often dictates who pays for the policy of title insurance, although this may be a negotiable item in your closing.
What are clouds on a title?
Clouds are liens or judgments on a title. A lien is a claim to property for the payment of a debt, and the lien holder could foreclose on the property if the debt is not paid off. Liens can generally be removed by the payment of the amount owed. This payment can occur before the closing takes place, or at the time of closing.
There are many types of liens, all of which could cloud the title and prevent the seller from conveying marketable title to the buyer. A mechanic’s lien, or a construction lien, is a claim made by contractors or subcontractors who have performed work on the house who have not been paid. A supplier of materials delivered to the job may also file a mechanic’s lien. Another type of lien which may occur is one related to a divorce in which one spouse may be awarded the right to live in the house. When that spouse sells the property the ex-spouse may be entitled to half of the equity. If things don’t go as they should, the ex-spouse could file a lien for his share of the sales proceeds. There are also liens which exist in connection with condominiums and a homeowner’s association dues. At closing, the title or escrow company should request a certificate of payment from the homeowner’s association to be sure that all dues and assessments have been paid and are current.
When do I receive a copy of the deed to the property?
The deed will be mailed to the buyer from the recorder’s office after it has been documented (recorded) in the county official records.