Title Insurance

The Need for Title Insurance:

Insurance policies are contracts designed to protect against various types of risks. Title insurance protects the policy holder against losses caused by problems with the title to real estate. Essentially, the insurance guards against future claims against the property that arise out of events that happened in the past.

Specifically, title insurance policies:
  • assure buyers and lenders that the seller actually owns the property being sold;
  • protect against claims that someone somewhere might have against the property that could impair the current owners use or enjoyment;
  • guard against other "undetectable" title flaws like forgeries in the chain of title or on releases of old mortgages or other liens;
  • protect against the risks of missing signatures or incompetent signors
  • assure the correct legal descriptions of the parcels sold;
  • guaranty against improper notarizations of prior title documents;
  • guard against certain undisclosed easement rights;
  • cover incomplete payoffs of a sellers existing mortgages at the time of closing; and,
  • protect against last minute liens at or about the time of closing
Although these occurrences are rare, the risk of having to "give up" your new property because a long lost owner surfaces, or to pay off someone else's debt is a risk that is simply not worth taking ; especially if you consider the amount of money it took to buy the property in the first place.

The insurance is purchased with a single premium that is paid at the closing. The insurance stays in force for as long as the buyer owns the property

How Title Insurance Companies Assure Good Title:

Title companies scour the public land records to determine (1) the precise legal description of the property involved in the transaction, and (2) who the "official" owner of record is. Then, they search forward and backward in the land records to see who has liens or other claims against the property. This usually involves searches for property tax payments, mortgages and mechanics liens. The title companies also check to see if any of the owners or buyers have pending lawsuits or judgments that could impair the title, and they usually give advisory notices about transfer taxes, municipal certifications and other similar matters.

Claims on Title Policies:

Insurance is a contract. As with any other contract, an insured must perform his or her end of the bargain in order to insist that the insurance company pay or defend a claim The insured must (a) pay for the policy (b) give prompt notification of a claim (or potential claim) and (c) cooperate with the insurance company and its attorneys. In this regard, it is imperative that a homeowner contact the insurance company as soon as a claim is discovered or threatened.

The insurance company gets three choices to handle claims. it can:
  • defend the claim by hiring lawyers, in which case it must pay all legal expenses and any award of court
  • settle the claim and restore the insured's title as originally insured or partially restore the title and compensate the insured for any diminution
  • if the title is completely indefensible, it pay the insured the full policy amount of as much up to that limit is required to pay the insured's actual loss.