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:
- Chain of Title - History of the ownership of the subject property.
- Tax Search - The tax search reveals the status of the taxes and assessments.
- Judgment and Name Search - Searches for judgments and liens against the Owners' and Purchasers' name.
Once the three searches have been completed, the file is reviewed by an examiner who
determines:
- Whether or not the Chain of Title shows that the party selling the property has the
rights to do so.
- The status of taxes for the subject property. The Tax Search will also indicate the
existence of any special assessments against the land and whether or not these
assessments are current or past due.
- Whether there are any unsatisfied judgments on the Judgment and Name Search
against; the previous owners, Sellers, or and Purchasers.
- Rights established by judgment decrees, unpaid federal income taxes and
mechanic liens all may be prior claims on the property, ahead of the Buyer's or
Lender's rights.
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:
- Defending your title, in court if necessary, at our expense.
- Bearing the cost of settling the claim if it proves to be valid, in order to perfect
your title and keep you in possession of your property.
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