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What Is Title Insurance?
What Is Title Insurance?
Explained by Fidelity National Title
A Word About Real Estate
Real estate has traditionally been a family's most valuable asset. It is a form of wealth that is protected by many laws. These laws have been enacted to protect one's ownership of real estate and the improvements located on the land. The owner, the owner's family, and the owner's heirs may have rights or claims in and to the property that you are buying. Those who may have an interest in or lien upon the property could be governmental bodies, contractors, lenders, judgment creditors, the Internal Revenue Service, or various other individuals or corporations. The real estate may be sold to you without the knowledge of the party having a right or claim in and to the property. In addition, you may purchase the real estate without having any knowledge of these rights or claims. In either event, these rights or claims remain attached to the title to the property that you are buying until they are extinguished.
The Past Can Determine Your Future
Generally, a person thinks of insurance in terms of the payment of future loss due to the occurrence of some future event. For instance, a party obtains automobile insurance in order to pay for future loss occasioned by a future "fender bender" or for the future theft of the car. Title insurance is a unique form of insurance. It provides coverage for future claims or future losses due to title defects which are created by some past event (i.e., event prior to the acquisition of the property.) These risks are far less obvious than those protected against by automobile insurance, but can be just as devastating. The following information will answer some commonly asked questions about title insurance.
How Does The Title Company Find Out What Title Risks Exist?
In order to determine the status of title, the Title Company conducts a diligent search of the public records for those documents associated with the property. Next, they examines those recorded documents in order to determine if there are any rights or claims that may have an impact upon the title to the property. The title search may reveal the existence of recorded defects, liens or encumbrances upon the title such as unpaid taxes, unsatisfied mortgages, judgments and tax liens against the current or past owners, easements, restrictions and court actions. Matters that are discovered in the search can be excepted, resolved or extinguished prior to the closing of the transaction. In addition, you are protected against any loss or damage resulting from recorded defects, liens or encumbrances that are within the scope of coverage of the particular policy issued in the transaction.
What About Hidden Title Risks?
The title to the property that you have purchased could be seriously threatened or lost completely by hazards which are considered "hidden risks." "Hidden Risks" are those matters, rights or claims that are not shown by the public records and, therefore, are not discoverable by a search and examination of those public records. Matters such as forgery, incompetency or incapacity of the parties, fraudulent impersonation, and unknown errors in the records are examples of "hidden risks" which could provide a basis for a claim after you have purchased the property. The policies issued by your Title company protect you against many of these “hidden risks.”
How Does a Title Insurance Policy Protect an Insured Owner?
In the event of a covered matter affecting your title, your insurance policy may protect you in various ways including: (1) Defending your title, (2) Bearing the cost of settling the covered matter, or (3) Paying you for the loss due to the covered matter.
Only One Premium
Unlike other forms of insurance, the original premium is your only cost as long as you own the property. There are no annual payments to keep your Owner's Title Insurance Policy in force.
WHY DO YOU NEED TITLE INSURANCE?
To protect possibly the most important investment you'll ever make - the investment in your home. With a title insurance policy, you as owner, have an indemnity contract that will reimburse you for loss in the event someone asserts a claim against your property that is covered by the policy.
How can there be a title defect if the title has been searched?
Title insurance is issued after a careful examination of copies of the public records. But even the most thorough search cannot absolutely assure 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.
What title insurance protects against
Here are just a few of the most common hidden risks that can cause a loss of title or create an encumbrance on title:
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False impersonation of the true owner of the property
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Forged deed, releases or wills, Instruments executed under invalid or expired power of attorney;
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Undisclosed or missing heirs; Mistakes in recording legal documents
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Misinterpretations of wills Deeds by persons of unsound mind
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Deeds by minors
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Deeds by persons supposedly single, but in fact married
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Fraud
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Liens for unpaid estate, inheritance, income or gift taxes
What protection does title insurance provide against defects and hidden risks?
Title insurance will pay for defending against any lawsuit attacking your 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 you, or your heirs, retain an interest in the property.
What this means to you
The peace of mind in knowing that the investment you've made in your home is a safe one.
EXAMPLE STEPS IN THE TITLE PROCESS
Provided by Fidelity National Title
Initial Request for Title Insurance
An order for title insurance is opened with a title officer who produces the initial response promptly within 24 to 48 hours. A preliminary report can be issued with the minimum of information; without even identifying the buyer or the terms of the sale. It shows the record title as it presently exists and is only an offer to provide insurance.
On-Site Searching and Examining
Your title officer performs three searches: Property, Name, and Tax searches. From that information, a preliminary report is created. Our on-site customer service center expedites the process of obtaining hard copies of recorded documents. Imaging helps to expedite searches with the ability to obtain documents online.
Technical Review
The skill and expertise of our title officer is the key to providing you with a useful, accurate title report. Once the report is issued the review begins by making a technical analysis of the documents of record. An interpretive view of all recorded matters is made to evaluate their impact on the title to the property. Among the questions the examiner asks are: Would any of the recorded matters prevent the buyer from using the property for its intended purpose? Can antiquated leases be eliminated from the policy per a review of the current leases?
Inspection Analysis
In anticipation of ALTA coverage, a site inspection is ordered. From the inspection report, the initial title product is supplemented to show any encroachments or other off-record matters which would ultimately impact the title.
Reinsurance
The title insurer will insure up to the total sale price or loan amount, and then employs another title insurance company to insure them. The premium paid to the re-insurance title company is deducted from the title fees; it is not an additional charge to the parties. Re-insurance is handled by the Title Department when requested by the proposed insured or is required based upon self-imposed or statutory title insurance limits.
Coinsurance
The proposed insured may only allow the title insurance company to insure up to a certain amount (i.e. not the total sale price or loan amount). The insuring company must employ another title insurance company to insure the remainder of the sale price or loan amount. When there is co-insurance, the customer is charged based upon each company’s filed rates for the portion of the total liability covered by that company. The co-insurance company may be chosen by the customer.
21 REASONS FOR TITLE INSURANCE
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A fire destroys only the house and improvements. The ground is left. A defective title may take away not the only the house but also the land on which it stands. Title insurance protects you (as specified in the policy) against such loss.
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A deed or mortgage in the chain of title may be a forgery.
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A deed or a mortgage may have been signed by a person under age.
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A deed or a mortgage may have been made by an insane person or one otherwise incompetent.
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A deed or a mortgage may have been made under a power of attorney after its termination and would, therefore, be void.
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A deed or a mortgage may have been made by a person other than the owner, but with the same name as the owner.
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The testator of a will might have had a child born after the execution of the will, a fact that would entitle the child to claim his or her share of the property.
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A deed or mortgage may have been procured by fraud or duress.
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Title transferred by an heir may be subject to a federal estate tax lien.
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An heir or other person presumed dead may appear and recover the property or an interest therein.
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A judgment or levy upon which the title is dependent may be void or voidable on account of some defect in the proceeding.
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Title insurance covers attorneys’ fees and court costs.
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Title insurance helps speed negotiations when you’re ready to sell or obtain a loan.
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By insuring the title, you can eliminate delays and technicalities when passing your title on to someone else.
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Title insurance reimburses you for the amount of your covered losses.
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A deed or mortgage may be voidable because it was signed while the grantor was in bankruptcy.
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Each title insurance policy we write is paid up, in full, by the first premium for as long as you or your heirs own the property.
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There may be a defect in the recording of a document upon which your title is dependent.
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Claims constantly arise due to marital status and validity of divorces. Only title insurance protects against claims made by non-existent or divorced "wives" or "husbands."
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Many lawyers, in giving an opinion on a title, protect their clients as well as themselves, by procuring title insurance.
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Over the last 24 years, claims have risen dramatically.
Americans have the future in mind when they buy a house, and they purchase homeowners insurance to help protect that future. But with homeownership comes the need to protect the property against the past, as well as the future.
Title insurance protects a policyholder against challenges to rightful ownership of real property, challenges that arise from circumstances of past ownerships. Each successive owner brings the possibility of title challenges to the property.
Documents in the Title Process
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Preliminary Report
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Commitment - Shows the condition of title in the way we are willing to issue it.
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Pro Forma - Specimen of what the requested policy, as requested, will look like. Underwriting issues not completed. Not binding upon the company.
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Policy - Final contract of indemnity between named insureds and the company.