Title insurance, especially Owner’s title insurance, is extremely important when purchasing a house or piece of property. Yet many Buyers are unsure about what title insurance is and what it protects against. Here are some answers to the more common questions about title insurance.
There are two types of title insurance: Lenders title insurance, which is also referred to as a Loan Policy, and Owner’s title insurance, referred to as an Owner’s Policy. Most lenders require a Loan Policy when they issue you a loan. The Loan policy coverage is usually based on the dollar amount of your loan, but it some lending situations, the loan policy coverage could be greater than the amount of your loan. It protects the lender’s interests in the property should a problem with the title arise. Owner’s title insurance coverage usually equals the amount of the real estate purchase price. It is purchased for a one-time fee at closing and lasts as long as you or your heirs have an interest in the property. Owner’s title insurance will also protect you even after you’ve conveyed your interest in the property in the instance a lawsuit arises under the warranty deed. Only Owner’s title insurance fully protects the Buyer should a problem arise with the title that was not uncovered during the title search. Owner’s title insurance also pays for any legal fees involved in defending a claim to your title.
In order to issue title insurance, the title underwriter must search public land records for matters affecting that title. Many title underwriters search the “chain” of title back 50 years. After a title search is conducted a title commitment is produced. About a quarter of the time title searches discover a title defect that will need to be fixed before the closing occurs and title insurance can be issued. Once these items are corrected the title agent is able to properly issue the title policy to the Buyer. In the event these issues cannot be corrected in a timely fashion, the title agent should work with both the Buyer and Seller to assist them in correcting the matters. Many times title related defects will require the Seller to engage an attorney to fix the problem.
Occasionally, in spite of an exhaustive title search, hidden hazards can emerge after closing. Things such as mistakes in the public record, previously undisclosed heirs claiming to own the property, or forged deeds could cloud the title. Owner’s title insurance offers financial protection against these hidden hazards by negotiating with third-parties, and paying claims and the legal fees involved in defending the title.
Below are some common title problems:
- Documents executed under false, revoked or expired powers of attorney.
- False impersonation of the true land owner.
- Undisclosed heirs.
- Improperly recorded legal documents.
- Prescriptive rights in another not appearing of record and not disclosed by survey.
- Failure to include necessary parties to certain judicial proceedings.
- Defective acknowledgments due to improper or expired notarization.
- Gaps in the chain of title.
- Mistakes and omissions resulting in improper abstracting.
- Forged deeds, mortgages, wills, releases of mortgages, and other instruments.
- Deeds by minors.
- Deeds which appear absolute, but which are held to be equitable mortgages.
- Conveyances by an heir, devisee or survivor or a joint estate who attempts to attain title by ill-gotten means.
- Inadequate legal descriptions.
- Conveyances by undisclosed divorced spouses.
- Duress in execution of wills, deeds and instruments conveying or establishing title.
- Issues involving delivery of conveyance instruments.
- Deeds and wills by persons lacking legal capacity.
- Errors in tax records.
- Administration of estates and probate of wills of missing persons who are presumed deceased.
- Issues of rightful possession of land.
- Issues concerning the rightful conveyances by corporate entities.
- Issues involving improper marital status.
- Improper modification of documents.
- Rights of divorced parties.
- Misinterpretation of wills and ancillary instruments.
- Deeds by persons falsely representing their marital status.
- Claims by creditors of a decedent against property improperly conveyed by heirs and devisees.
- Special tax assessments.
- Real estate homestead exceptions.
- Issues concerning interests noted in financial statements filed under Uniform Commercial Code.
- Interests arising by deeds of fictitious parties.
- Lack of jurisdiction or competency or persons in judicial proceedings.
- Community property issues.
- Utility easements.
- False affidavits of death or heirship.
- Intestate estates.
- Probate matters.
- Federal estates and gift tax liens
Even if you recently purchased or refinanced your home, there are some problems that could arise with the title. For instance, you might have incurred a mechanics lien from a contractor who claims he/she has not been paid. Or you might have a judgment placed on your house due to unpaid taxes, homeowner association dues, or child support for instance. The lender needs reassurance that the title to the property they are financing is clear, hence the reason for a new Lender’s Policy.
Construction of a new home raises special title problems for the lender and owner. You may think you are the first owner when constructing a home on a purchased lot. However, there were most likely many prior owners of the unimproved land. A title search will uncover any existing liens and a survey will determine the boundaries of the property being purchased. In addition, the builder may have failed to pay subcontractors and suppliers. This could result in the subcontractor or supplier placing a lien on your property.
As you can see title insurance, whether required by a lender or not, is always a good way to protect your vested interest in your property. As always, should you have any questions pertaining to title insurance we urge you to consult with your local real estate attorney.
Berlin Patten Ebling, PLLC
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
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