What is Title Insurance?
The decision to purchase a home (or other real property) is one of the most important financial decisions you may ever make. However, having the deed to a piece of land does not necessarily mean the property is yours outright. Other people may have certain prior rights or claims that your deed will not erase. Such rights can go back all the way to the earliest owners of your new property. You will want to make sure that you will remain the true owner and that no one will have liens, claims, or encumbrances on your property — other than those which you agreed to.
Title insurance is a contract that protects against losses resulting from various types of defects, as described in the policy, that may exist in the title of a specific parcel of real property. This protection is effective as of the date on which the policy is issued. Title companies issue policies on all types of real property. It insures against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage loans. Title insurance protects your investment indefinitely. You need to get it.
How it Works
Title insurance is different than your ordinary insurance plans. Most other types of insurance are designed to insure future events; you make a reoccurring payment to continue your policy in the future. For example, homeowner’s insurance will cover any unfortunate situations from the moment you purchase your home, and going forward while you own it.
Title insurance is different. When you purchase title insurance it will not only cover for the future throughout the entire time that you own the property, but it also covers every kind of title issue with a property that has happened in the past. Whether you own the property for six months or 50 years, there will never be a difference in your coverage. Title insurance is also different in that it does not have to be renewed.
An important part of title insurance is its emphasis on eliminating risk elimination the title company chooses to insure. This means that the purchaser has the best possible chance for avoiding claims to the title and potential loss. The process of title insuring begins with a search of public land records for matters affecting the title to the real estate. Title companies will check for defects in your title by examining public records including deeds, mortgages, wills, divorce decrees, court judgments, tax records, liens, encumbrances and maps. The title search determines who owns the property, what outstanding debts are against it, and the condition of the title.
Title companies maintain title “plats” which contain information regarding property liens and transfers. A search is intended to fully report all material objections to the title. Often it is found that instruments in the chain (history) of ownership do not pass title to real property free and clear. These problems in the title search need to be corrected before a clear title can be conveyed. Some of the instruments that can present concerns include:
- Deeds, wills and trusts that contain improper conveyances and incorrect names
- Outstanding mortgages, judgments and tax liens
- Incorrect notary acknowledgments
Title problems like these are disclosed by a search so that they can be cleared up as soon as possible. But even the most careful preventive work cannot always locate hidden hazards of the title.
What it Protects
Some of the protections title insurance provides include:
- Protection from financial loss due to covered claims against your title, up to the face amount
of the policy.
- Payment of your legal costs if the title insurance company is required to defend your title
against covered claims.
- Payment of successful claims against your title, up to the face amount of the policy.
Title insurance protects you and your lender if someone challenges your property title because of title defects unknown at the time you bought the policy. Possible title defects include:
- Errors or omissions in deeds;
- Mistakes made in examining records;
- Undisclosed heirs;
- Missing heirs;
- Liens for unpaid taxes; or
- Liens by contractors.
Title insurance offers financial protection against these and other hidden hazards through negotiation by the title insurer with third parties, payment for defending against an attack on title as insured and payment of claims.
Title insurance protects the insured from losses resulting from claims against one’s ownership of real estate. It is unique in that it provides protection from problems that occurred even before the insured took title.
Some of the more common hidden risks covered under owner’s title insurance:
· False impersonation of the true owner;
· Confusion caused by similar names;
· Signatures of minors or people who are not mentally competent;
· Signatures of people represented as single but who are actually married;
· Errors in recording legal documents;
· Clerical errors;
· Undisclosed or missing heirs;
· Fraud and/or Forgery;
· Invalid divorces;
· Unpaid child support lien;
· Unpaid taxes (local, state, federal); and
· Unrecorded easements (rights of way).
Most of the costs for title insurance arise from searching public land records, tax assessor records and court documents and analyzing them for risk, clearing matters that can be disposed of and preparing the necessary documents.
The amount and type of coverage provided will determine the cost of premiums. The schedule of rates, forms and any rate modifications are required to be filed with the North Carolina Department of Insurance. Unlike other insurance premiums, the premium for title insurance is a one-time payment. The policy is effective for as long as title (ownership) remains in the name of the purchaser, or his/her heirs.
Title companies usually issue two types of policies: an owner’s policy that insures the buyer for as long as he or she owns the property, and a lender’s policy that insures the lender’s security interest has priority over the claims that others may have in the property. A lender’s policy does not protect the purchaser.
Owner’s Title Insurance
An owner’s title insurance policy describes the property and defines your ownership “limitations” (if there are any). Limitations could be in the form of existing liens or items disclosed to you before you agreed to the purchase (limitations you have accepted in buying the property). You are not required to buy an owner’s policy.
The owner’s policy remains in effect as long as you or your heirs own the property or when you are liable for any title warranties made when you sell the property. Owners title insurance is ordinarily issued in the amount of the real estate purchase and lasts the duration of the purchaser’s interest in the property. This may even be after the insured has sold the property.
You may want to keep your policy, even if you transfer the title. You cannot transfer your owner’s title policy to a new owner. If the new owners want an owner’s title policy, they must purchase their own policy.
Similarly, when purchasing real property, the prior owner’s policy will not protect you. If you want to protect yourself from claims by others against your new property, you will need an owner’s policy. When a claim does occur, it can be financially devastating to an uninsured owner and likely more expensive than the costs of purchasing title insurance at the outset.
Lenders’/Mortgagee Title Insurance
When you “close” on your mortgage loan, title insurance may be included in the amount you pay. Most lending institutions will not loan money for a house or other property unless you purchase a “lender’s” or “mortgagee” title policy. This policy protects the lender’s investment by paying the mortgage if a title defect voids the owner’s/buyer’s title. Investors who buy the new loan often require a lender’s title policy. The amount of lender’s title insurance decreases and eventually disappears as the loan is paid off.
If You’re Still Not Convinced
There is a wide range of title problems you could have, and should you have one, the bottom-line of the problem is that you do not own the property free and clear. The one-time payment can protect your real property investment indefinitely.
Most title problems can be fixed. Purchasing title insurance can make you aware of the problems and take steps to fix it as soon as possible.
How soon after closing on your property will you get your title insurance policy? Most people have the expectation that they will have their title insurance policy on the day of closing. However, in reality, there are a series of steps that the attorney has to take after closing to get the title insurance issued. The general goal is for the title insurance company to have issued the policy within 30 days of closing.
Contact one of the attorneys at Morgan & Perry Law, PLLC today for all your title insurance questions.