The answer to this important question is of vital importance to every person who is a party to a real estate transaction. Buying any kind of real estate could very well represent the largest single investment a person ever makes. And real estate, like every other thing of value, is worth protecting.
These questions have been prepared so any questions you may have about the value of title insurance and the protection it affords may be answered.
What is Title Insurance?
A policy of Title Insurance is a contract of indemnity between the insured and the insuring company relating to the title to the land described in the policy, protecting the insured against loss of damage by reason of defects, liens or encumbrances of the insured title existing at the date of the Policy and not expressly excepted from its coverage.
The Policy is issued after a complete search and examination of the public records and shows the condition of the record title, including any money obligations outstanding against the property, easements and other matters which may affect the rights of ownership, possession and use of the property.
What can make a Title defective?
There are many possible causes of title defects that no examination can disclose. That is because they have never been recorded and thus do not appear in the abstract. A title insurance policy protects the owner against all these hidden risks. Hidden risks include the items listed below, and many more:
Fraud. False claims of ownership, forged deeds, wills, signatures, conveyances, instruments, false representations, false records of all sorts, illegal acts of trustees, guardians, administrators, and attorneys.
Human error. This includes errors in copying, indexing, or recording; and errors by administrators, executors, trustees, guardians and attorneys. This might also include the destruction of records.
Improper deeds and wills. Deeds by persons of unsound mind, minors; deeds delivered after death or without the grantor’s consent; invalid, suppressed erroneous wills, missing heirs, unsettled estates.
Liens and other rights. Liens for unpaid estate, inheritance, income, property and taxes; homestead rights, community property rights; irregular court proceedings, court opinion reversals, lack of court jurisdiction; defective foreclosures.
What Protection Does Title Insurance Give?
It insures that the “record” title, is good subject only to the exceptions expressly set out in the Policy. It also insures against certain matters which do not appear of record, such as forgery, identity of parties, incompetence of former owners, interest of missing heirs, and status of individuals not having the “right” to sell property.
What Risks Are Not Covered?
The standard owner’s policy and standard mortgage policy are based on public records of the recording district in which the land is located. It does not insure against matters that would only be disclosed by actual inspection or survey of the property. It also does not insure against certain matters not shown by the public records, such as unrecorded easements, liens or money obligations; unrecorded utility rights of way, public or private roads, community driveways and other types of encumbrances; or against the rights or claims of persons in possession of the property who are not shown by the public records.
Can Protection Be Obtained Against Matters Not of Record?
Upon application, the issuing company may specially cover matters that are disclosed by a physical inspection and/or a survey of the property, subject to any exceptions that the inspection will determine to be proper. An additional risk premium is charged for this type of coverage. Insurance of this kind is called “extended coverage”.
Are There Different Kinds of Policies?
Yes. Owner’s Policies are issued to real estate owners. Purchaser’s Policies are issued to purchasers of real estate under contract. Mortgage Policies are issued to mortgage lenders. In addition there are several other special forms of policies. There is a type of policy to meet the requirements of almost any form of real estate transaction.
When Is the Policy Issued?
An owner’s policy protects only the owner while a Mortgage policy protects only the holder of the mortgage on the property. Separate policies are required to protect both interests. Special rates are available when both Owner’s and Mortgage policies are applied at the same time. The Owner’s Policy of title insurance usually is issued after the deed to the buyer is ‘delivered’ and recorded. A Purchaser’s Policy is usually issued after both parties have executed the contract or after the signed contract has been recorded. The mortgage policy of title insurance is usually issued after the mortgage or deed of trust has been properly executed and recorded.
If I Was Insured when I Bought the Land, Why Should I have it Re-Issued to My Purchaser When I Sell?
The coverage of your policy is against all matters that appeared of record up to the date of issuance of your policy. Since that time many documents may have been recorded, some of which may affect the title to your land. Taxes and assessments may have accrued and been unpaid. There may have been actions in court affecting your title. The purchaser is entitled to have full information and protection as to the condition of the title right up to the date of his purchase. In addition, there may be matters of record, which would prevent either the seller or buyer from selling, buying, or mortgaging land, until such matters have been cleared. These items include such things as federal tax liens, judgments, incompetencies, divorce actions and other conditions that the title search may disclose.
How Are Premiums for Title Insurance Determined?
The amount and type of coverage provided determine title Insurance Premiums. Unlike other insurance premiums, however, the title insurance premium is paid only once, as the policy is effective for so long as title or “ownership” remains in the name of the insured or his heirs or devises. Rates are filed with the insurance commissioner who regulates the activities of title insurers.