Many home buyers assume that when they purchase a piece of property, all they need to prove ownership is the deed to the property. This is not true. Hidden hazards may attach to the title. A property owner's greatest protection is a policy of title insurance.
Understanding Title Insurance
Title insurance Companies look at "chain-of-title". Title insurance companies are not concerned with our ancestors and dinosaurs that once roamed the earth. Title searches begin when the United States government claimed the land from the U.S. patent - and move forward from that point.
The purchase of a home is probably the single largest investment you'll make in your lifetime. It is only prudent to safeguard your rights and investment. Title insurance assures your rights and interests to the subject property, transfer of ownership, and protection from future claims against the property. It is the, most effective and least expensive way to protect your ownership rights.
Since land endures over generations, many people may develop rights and claims to a particular property. The current owner's rights, which often involve family and heirs may be obscure. There may be other parties such as government agencies, public utilities, lenders or private contractors, who also have "rights" to the property. These interests limit the "title" of any buyer.
Before your real estate transaction closes, the title company performs an extensive search of all recorded documents reLated to the property. These records are then examined by experienced title officers to determine their effect on the current status of ownership. A report is then issued to you or your agents for review. This thorough examination generally allows any pending title problems to be identified and cleared prior to your purchase of the property.
If title insurance companies work to eliminate risks and prevent losses caused by defects in the title before the closing, why do you need a title insurance policy?
Even after the most careful research, some title flaws may go undetected. Among the more common flaws to title which are not of record are forgery, invalid court proceeding, mistaken legal interpretations, defective deeds, confusion due to similarity of names, previously unrecognized rights of spouses and undisclosed heirs. These problems may surface at any time in the future.
Protection against these flaws and other claims is provided by the title insurance policy, which is issued after your transaction is complete. Two types of policies are routinely issued at this time: an "owners policy" which covers you, the homebuyer for the full amount you paid for the property; and a "lenders policy" which covers the Lending institution over the life of the Loan. When purchased at the same time, you can obtain a substantial discount in the combined cost of an owner's and a lenders policy. Unlike other forms of insurance, your title insurance policy requires only one moderate premium for a policy to protect you or your heirs for as long as you own the property. There are no renewal premiums or expiration date.
Each policy is a contract of "indemnity." It agrees to assume the responsibility for legal defense of your title for any defect covered under the policy's terms and to reimburse you for actual financial losses up to policy limits.
Source: Orange Coast Title Co.
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What Is Title Insurance?
It is a contract of indemnity under which the title insurance company agrees to indemnify the insured for any losses suffered if the title to the property is not as represented in the policy. The title policy covers the insured for the amount of any covered loss up to the limits of the policy.
Title insurance assures that a purchaser is acquiring marketable title. It is designed to eliminate risk or loss caused by defects in the owner's title. Normally, title insurance only provides coverage for title problems which already exist at the time the policy is issued. However, the new CLTA/ALTA Homeowners Policy also provides coverage for some post-policy matters as well.
The Title Search
Title companies work to eliminate risks by performing a search of the public records pertaining to the property. Such records include those pertaining to the ownership of the property, any recorded liens or encumbrances, and any other matters of record which could affect the title to the property. When a title search is complete, the title company issues a preliminary report detailing the terms under which it is prepared to issue a policy.
The Preliminary Report
A preliminary report contains vital information which can affect the close of escrow. However, a preliminary report is not necessarily a representation as to the actual status of title. Rather, it is an offer to issue a title insurance policy, subject to the terms and conditions stated in the report.
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