Get the basics on title and title insurance so you can make an educated decision about your policy.
Title refers to the ownership of a piece of real property, which means the right of possession, right of control, right of exclusion, right of enjoyment, and right of disposition. The title is a recorded document in the public records where the property is located.
Before you purchase a property, Real Land Title performs a search of the title to verify the current owner, determine if there are any restrictions on how the property may be used and discover if the title has any liens or defects. Details on what a title search uncovers are below:
The ownership history includes current and past owners of the property.
Examples of defects include misrecorded information in the public record, forged signatures on deeds, competing claims of ownership and previously unknown heirs.
Common liens include previous loans or mortgages that have not been paid off, as well as unpaid real estate taxes and mechanic’s liens.
These are disputes/resolutions about a property boundary line or items like utility poles, water lines, fences or driveways that cross a property boundary line.
Title insurance is a form of indemnity insurance that protects against losses up to the coverage limit that result from issues not uncovered during the title search, including forged deeds, inaccurate legal descriptions of the property, unpaid taxes from previous owners, and undisclosed heirs claiming an interest in the property.
There are two kinds of title insurance policies. One protects the lender’s interest in the property if it was purchased with a loan. The other protect’s the owner’s interest in the property. Nearly all owners purchase title insurance, though it is not required. If the property is being purchased with a loan, lender’s will require a lender’s policy.
A new homebuyer applies for a permit to renovate his property but is denied after an inspector finds a previous unauthorized improvement made to the home. The new homebuyer also has to pay to remove the unauthorized improvement.
The new homebuyer is compensated for the remediation costs as specified in the owner’s policy.
A buyer purchases a newly constructed home, unaware that the builder owed payments to contractors that worked on the home. Months after the closing, the owner receives notice that a mechanic’s lien has been filed against his home. Some of the contractors are threatening to go to court to foreclosure on the home to receive what they are owed.
The owner’s enhanced title insurance policy covers mechanic’s liens, so the title insurance company pays for the lawyers that defend the buyer in court.
A homeowner’s identity is stolen and their home is sold with forged signatures.
The enhanced owner’s policy covers identity theft, so the title company helps the owner with legal fees to regain ownership.
A new homebuyer receives notice that the previous owner took out a second loan against the property while the sale was being finalized, meaning that the property has two owners in the public records.
This situation is covered by the owner’s policy, so the title insurance company pays to release the other loan.
The level of coverage you choose depends on the level of risk you are comfortable with.
This kind of policy only protects the lender’s interest in the property, not the owner’s. A lender’s policy only goes into effect if the lender takes possession of the property.
A basic owner’s policy protects the owner against losses resulting from issues with the title or liens against the title that occurred prior to the purchase date and were not discovered in the title search.
A more enhanced owner’s policy will include basic protections as well as protection against future claims, prior permit violations, survey errors and more.