What the homebuyer should know about title insurance...

Why the Buyer Needs Title Insurance

Without a title insurance policy, you may not be fully protected against errors in public records, hidden defects undisclosed by the public records, or mistakes in examination of the title of your new property. As a result, you may be held fully accountable for any prior liens, judgments or claims brought against your new property. However, your policy insures that if such an occasion arises, you will be defended free of charge against all covered claims and paid up to the amount of the policy to settle valid claims. With a title insurance policy, you do not need to worry that your new property's history will tarnish your bright future.

The Lender's Policy

A lender goes to great lengths to minimize the risk of lending money for the purchase of real estate. First, credit is checked as an indication of the borrower's ability to repay the loan. Then the lender seeks assurance that the quality of the property’s title to be acquired is satisfactory. The lender does this by obtaining a loan policy of title insurance.

NOTE: The loan policy does not protect the borrower.

The loan policy protects the lender against loss due to unknown title defects. It also protects the lender's interest from certain matters which may exist, but may not be known at the time of the sale.

This policy only protects the lender's interest. It does not protect the borrower. That is why a real estate purchaser needs an owner's policy which can be issued at the same time as the loan policy for a nominal one-time fee.

What is the danger of loss?

If the lender has title insurance protection and the owner does not, what possible danger of loss exists?

As an example, assume real estate was purchased for $150,000. A down payment of $30,000 was made, and the lender held a $120,000 mortgage lien, or beneficial interest. The lender acquired title insurance protecting the lender's interest up to $120,000. But the purchaser's down payment of $30,000 would not be covered.

What if some matter arises affecting the past ownership of the property? The title insurance company will defend and protect the interest of the lender. The purchaser, however, will have to assume the financial burden of his or her own legal defense. If the defense is not successful, the result could be a total loss of title.

The title insurance company will pay the lender's loss and will be entitled to take an assignment of the borrower's debt. The purchaser will lose the down payment ($30,000.00), other equity in the property that may have accumulated, the property, AND THE BALANCE ($120,000.00) ON THE NOTE IS STILL DUE!

How can there be title defect if the title has been searched and a loan policy issued?

Title insurance is issued after a careful examination of copies of the public records. But even the most thorough search cannot absolutely insure that no title hazards are present, despite the knowledge and experience of professional title examiners. In addition to matters shown by public records, other title problems may exist that cannot be disclosed in a search.

Remember that you cannot hold the title company liable for any missed liens. There is only privity of contract between the lender and the title company. Simply put, the lender hired the title company and not the borrower. Therefore only the lender, not the borrower, can go after the title company for a title problem.

What title insurance protects against.

Errors/omissions by county officials or their employees in maintenance of public records.

Errors/omissions by employees of the company in the process of examining and insuring the title to the real estate described in the policy.

Missing heirs as a result of incomplete, wrongful, or non-existent probate court records in the chain of title.

Estate Tax Liens

Dower of spouses of owners in the chain of title whose interests were not disclosed in the public record, or the release of which was not properly secured.

Invalidity or impropriety of judicial actions in matters affecting the transfer of title or ownership of the real estate described.

Deeds of record obtained by fraud, or deeds of record which may be forged by reason of which the insured's title is defeated.

Forged mortgages, releases, waivers, assignments and cancellations of mortgages and mortgages cancelled by mistake.

Divorce proceedings outside of the county in which property is located.

Bankruptcy proceedings had in a foreign county.

False personation of the true owner of the land.

Deeds and mortgages made by minors or persons of unsound mind.

Deeds executed under expired powers of attorney.

Deeds of record which may be ineffective because delivered after the death of grantor or grantee, or without the consent of grantor.

Missing dower interests in title by reason of deeds by persons representing themselves as single, but who are actually married.

Birth or adoption of children after date of will.

Wills not probated, or wills probated after deed is executed and delivered by heirs.

Deed never delivered, but appears of record.

Release of dower of minor, husband or wife, under 18 years of age when there is no record proof of age of minor.

Falsification of records

What protection does title insurance provide against defects and hidden risks?

Title insurance will pay for defense against any lawsuit attacking the title as insured, and will either clear up title problems or pay the insured's losses. For a one-time premium, an owner's title insurance policy remains in effect as long as the insured, or the insured's heirs, retain an interest in the property, or have any obligations under a warranty in any conveyance of it. Owner's title insurance, issued simultaneously with a loan policy, is the best title insurance value a property owner can get.

How much does an Owner’s Policy cost?

Let's say that Jim buys a house for $150,000 and obtains a loan for $120,000. A loan policy for a $120,000 loan will be $480. An owner’s policy for property worth $150,000 will be $862.50. You can get a discount if you purchase an owners policy within 30 days of the purchase of a loan policy.

SO IF JIM GETS AN OWNERS POLICY WITHIN 30 DAYS OF THE CLOSING, HE ONLY HAS TO PAY $482.50 FOR HIS OWNER’S POLICY, NOT $862.50!!

THAT’S LESS THAN ½ OF 1% OF YOUR PURCHASE PRICE TO PROTECT YOUR REAL ESTATE INVESTMENT!