When you purchase a home, you want to have assurance that there are no problems with the home’s title. Anything attached to the property and/or defects on the title can limit your use and enjoyment of the property, as well as bring financial loss. Title Insurance is purchased in order to protect you or inform you of these things.
A title search is done to help identify ownership of the property, what other rights might affect a property and what rights need to be extinguished in order to insure a new party.
How is a title search prepared and what research is done?
After a sales contract has been accepted, a title professional will search the public records to look for any problems with the home’s title and to identify all the items that affect its use and the sale. The search typically involves a review of land records going back many years. They also search bankruptcy, OFAC, county assessor, GIS mapping and other databases in order to get as much information as possible.
More than 1/3 of all title searches reveal a title problem that title professionals fix before you go to closing. Examples of title issues:
1. Liens from debt incurred by owners that are not released properly.
2. Previous owner may have had minor construction done on the property, but never fully paid the contractor.
3. Errors and/or omissions in recorded documents affecting the property conveyed.
Title professionals seek to resolve problems like these before you go to closing and an insurance policy issued to protect against them.
Who Gets Title Insurance?
The Owner’s Policy
Sometimes title problems occur that could not be found in the public records or are inadvertently missed in the title search process. To help protect owners, they can obtain an Owner’s Policy of Title Insurance to insure against these. Owner’s Title Insurance, called an Owner’s Policy, is usually issued in the amount of the real estate purchase. It is purchased for a one-time fee at closing and lasts for as long as you or your heirs have an interest in the property. The cost of fees to insure is based on rates filed by the insurer with the state relating to the amount of coverage.
An Owner’s Policy provides assurance that your title company will stand behind you, monetarily and with legal defense if needed, if a covered title problem arises after you buy your home. The bottom line is that your title company will be there to help pay valid claims and possibly cover the costs of defending an attack on your title.
The Lender’s Title Policy
Most lenders usually require a Loan Policy when they issue a loan. The Loan Policy is usually based on the dollar amount of your loan. It protects the lender’s interests in the property should they need to foreclose, providing assurance against the inability to foreclose and their lien position. Traditionally, this policy is a cost to the buyers.