Title Insurance Tips

What is Title Insurance? Why Do You Need It?

You're having breakfast. There is a knock on the door. A former owner's brother introduces himself. He has been out of the country when his sibling passed away and didn't sign-off his interests as an heir to the estate. Could this be a problem?

A title insurance policy protects against losses that occur when you discover after closing that someone else can claim ownership of the property. Could that happen? Yes, if the rights of a previous owner were overlooked during your title examination or a search that came before it.

What is a title examination, or title search?

It's a close examination of all public records that involve title to the real estate you are purchasing. The person conducting the search looks at past deeds, wills, and trusts to make sure the "chain of title" has passed correctly to each new owner. The examiner also tries to verify that all prior mortgages, judgments, and other liens have been paid in full.

"Clouds" on the Title?

If a problem (called a "defect" or "cloud" on the title) is found, it should be corrected prior to closing. For instance, a previous owner sold the property 15 years ago. His wife was listed on the deed but for some reason did not sign-off at closing. Her interest in the property must eventually be removed to clear the title.

A title search should uncover other potential problems or nuisances, such as rights another may hold (right of ways, view easements, power line easements, mineral rights), claims by prior undisclosed heirs, and pending legal actions.

If the Title looks good, why do I need title insurance?

Because no one is perfect. Even an expert title examiner can miss a defect that might crop up to create problems for you later.

What does the Policy cover?

• Problems that did not show up during the title search or were missed by the examiner
• Errors in public records
• The policy will pay your legal fees if you must go to court to defend your deed.
• If you lose the property the insurance will pay you for the loss.

What isn't covered?

• A title insurance policy does not cover defects that occur after you purchase the property.
• Policies often exclude problems having to do with easements, mineral and air rights and liens. Be sure to ask for an explanation of exclusions, and a recommendation as to which items should be cleared prior to closing.

Do you have to buy Title Insurance?

Not if you're paying cash for the property. If you're obtaining a mortgage, the lender will require a policy to cover its interests. The lender may or may not require you to buy a policy for your own protections.

To whom is the Policy issued? Who is paid if there's a problem?

A lender policy is usually issued for the amount of the mortgage. It pays the lender if a problem surfaces.

An owner's policy cover the property's full sales price and insures the owner against loss.

Who pays for Title Insurance?

The seller, unless the buyer and seller agree otherwise in the contract.

How often must I pay the premium?

Title insurance policies are paid in-full with a one-time fee, which is usually part of the closing costs