What is Title and Why is it Needed?

Courtesy of the Talon Group

Title Insurance: What is it?

Title is a bundle of rights in real property. Protecting purchasers and lenders against loss is accomplished by the issuance of a title insurance policy. Usually, during a purchase transaction the lender requests a policy (commonly referred to as the Lender's Policy) while the buyers receive their own policy (commonly referred to as an Owner's Policy). In short, the policy states that if the status of the title to a parcel or real property is other than as represented, and if the insured (either the Owner or Lender) suffers a loss as a result of a title defect, the insurer will reimburse the insured for that loss and any related legal expenses, up to the face amount of the policy subject to exceptions and exclusions contained in the policy.

Who's covered?

Typically there are two (2) policies issued. The Lender's Policy insures the lender for the amount of the loan. The Owner's Policy insures the purchaser for the purchase price.

How is Title Insurance different than other types
of insurance?

While the function of most other forms of insurance is risk assumption through the pooling of risks for losses arising out of unforeseen future events (such as sickness or accidents), the primary purpose of title insurance is to eliminate risks and prevent losses caused by defects in title arising out of events that have happened in the past. To achieve this goal, title insurers perform an extensive search and examination of the public records to determine whether there are any adverse claims (title defects) attached to the subject property. Said defects/claims are either eliminated prior to the issuance of a title policy or their existence is excepted from coverage. Your policy is issued after the closing of your new home, for a one time nominal fee, and is good for as long as you own the property.

What's involved in a Title search?

A title search is done to determine 1) that the person who is selling the property actually has the right to sell it, 2) that the Buyer is purchasing the correct parcel of land and 3) possible defects in title.

A "title search" is really made up of three separate searches:

Once the three searches have been completed, the file is reviewed by an examiner who determines:

The title search will only uncover defects in title that are of public records and thus allowing the Title Company to work with the Seller to clear up these issues and provide the new Buyer with title insurance.

Are there different kinds of Title Insurance policies?

Yes. After the searches have been examined the Title Company will issue a commitment, stating the conditions under which it will insure title. The Buyer, Seller and the Mortgage Lender will proceed with the closing of the transaction after clearing up any defects in the title that have been uncovered by the search and examination.

As an owner you have your choice of three different levels of coverage: Standard, Extended or the ALTA Homeowner's Policy (aka the "Eagle Policy").

The ALTA Homeowner's/EAGLE Policy is not available for certain types of properties. Nor may it be necessary for your specific transaction.

How do I know which one to order?

For help in determining which coverage is best for you, please call your title unit. Ultimately, the final decision resides with you.

But how does Title Insurance protect me?

Title Insurance is assurance that any defect in title to the land you are purchasing (which can be discovered from the public records) has been called to your attention and corrected before your transaction closes. Should there e a claim made against your title as covered by your policy, it is then our obligation to protect you by:

Return to Financing Basics