Just What Is It And Why Do I Need It?
Almost everyone is familiar with some form on insurance coverage: insurance coverage
on your car, your life, medical/dental insurance or fire insurance on your home.
But what exactly is "title" insurance?
Title Insurance is information on the status of title to property and protection
against adverse claims that may affect the title. Here is how it works:
Before the closing of a loan or sale takes place, the public records are searched
and examined to determine ownership, limitations to the ownership encumberances
and any adverse matters affecting title to the property. These records are searched
by examining the official courthouse records where all recorded documents, judgements
liens, taxes, assessments (such as street or sewer), and other matters, such as
divorce and bankruptcy, are filed. The results of this examination will then be
provided in a preliminary title report or "commitment" to insure the property.
A commitment is a binding contract which reflects the current status of title before
a loan or sale is closed and binds the Company to issue its title insurance in favor
of the insured as owner or mortgagee of the property being searched, subject to
certain conditions and stipulations.
If there are serious problems found in the chain of title the title insurer will
report those matters and also exclude them from coverage. Buyers and lenders know
there are some limitations which should be removed such as the paying off and release
of a prior mortgage or judgement. Otherwise, they will continue to adversely affect
the property and the priority of their interests after closing. Sometimes problems
are discovered and a title company may choose to "insure over" the matter in order
for the transaction to proceed as planned.
No matter how careful or efficient, human beings can make mistakes
which could ultimately result in financial loss if not insured against. Items such
as missed judgements, tax liens or a prior mortgage may be missed or omitted from
a title search or commitment. A forged or fraudulent deed in the chain of title
or an undisclosed heir's interest may surface at a later date. An owner's or lender's
interest can best be protected from these conditions of title with title insurance.
There are two types of title insurance policies: Owner's Title Insurance and Lender's
or "Mortgagee's" Title Insurance. An Owner's Policy is issued in the amount of the
purchase price and insures the title to the property for as long as they or their
heirs own the property or have liability through warrants of title. A Mortgagee's
Policy insures the lender in the amount of the loan against the invalidity or unenforceability
of the new mortgage. The policy decreases as the loan is paid down and expires upon
payment in full of the loan.
Separate title insurance policies protect different interests. Individuals assuming
that they are adequately covered without the protection of title insurance may learn
a costly lesson. Is it important to know that the mortgagee policy does not provide
coverage for the owner. Also, a prior owner's policy will not protect a new buyer.
Consider, for example what would happen if upon the purchase of a new home the buyer
were to rely on their seller's owner's policy and later discover a previous undisclosed
interest or that a large judgement or tax lien was filed against the seller after
he took title to the property. Or, suppost the individual purporting to sign the
deed as the seller's wife was an impostor. The only way to be covered for these
catastrophes is to purchase title insurance coverage.
Although Advance Title & Abstract, Inc. makes every effort to eliminate the risk
involved in the purchase or mortgage of real property, there will always be certain
risks for buyers and investors. The benefits of title insurance are: clears title
problems; pays valid claims; and provides a defense for claims attacking the title
A title insurance policy issued by Advance Title & Abstract insures your interest
subject to exclusions and conditions in the policy and insured against loss or damange
resulting from: any title risk covered by that policy; and any cost, attorney's
fees, and expenses incurred under the policy.
Hidden Title Hazards
A forged deed that transfers no title.
Mistakes in the public records.
Outstanding mortgages, judgements and tax liens.
Documents executed under fabricated or expired powers of attorney.
Previously undisclosed heirs with claims against the property.
Deeds by persons of incompetent mind.
Deeds by minors.
Discovery of will of apparent intestate.
Duress in execution of documents.