What Is Title Insurance & Why Should I Have It?
An American Concept
What is title insurance? Title insurance is an American invention, born in the late 1870s. The first advertisement of title insurance stated its purpose as follows:
“This company insures the purchasers of real estate and mortgages against loss from defective titles, liens, and encumbrances. Through these facilities the transfer of real estate and real estate securities can be made more speedily and with greater security than heretofore.” Circa 1878.
So how does title insurance work? The purchaser/consumer is protected and indemnified from loss by the issuance of a Title Insurance Policy. Likewise, if the purchase transaction is being financed by a lender, the lender may be protected against loss by issuance of a Mortgagee Title Insurance Policy. Generally, the Owners Policy states that if the status of title to the parcel of real property is different from the representation of the policy, and the insured owner suffers a loss as the result of the title difference, the insurer will reimburse the insured for that loss (inclusive of legal expenses), up to the face amount of the policy.
How Is Title Insurance Different?
There is a singular difference between title insurance and other forms of insurance. The functions of most other forms of insurance, such as hazard, auto, life, or health, is the assumption of risk for losses arising out of unforeseen, future faults or conditions, such as car accidents, thefts, deaths, or illness.
Title insurance, in contrast, does not protect against future faults or conditions. The purpose of title insurance is to eliminate risks and prevent losses caused by title conditions or defects arising out of events that occurred in the past. In plain English, conventional insurance protects the consumer from future events, while title insurance protects the consumer from past events. A further distinguishing characteristic is that title insurance requires a one-time premium for the policy which remains in effect until property changes ownership.
How Does Title Insurance Protect Me?
To achieve the objective of protecting the purchaser/consumer, the title insurer performs an extensive search of the public records. In the industry, this person is a title examiner. The title examiner's purpose is to determine whether there are any adverse claims to the subject real estate. If the title examiner discovers any adverse interests or claims, the title agent will undertake to eliminate these interests or claims, or, as a minimum, disclose them to the purchaser/consumer for acceptance, prior to the issuance of the policy.
So, from what does title insurance protect the purchaser/consumer?
As mentioned, protection is afforded from events that occurred in the past impacting the title to the property. These may include: undisclosed heirs, unsatisfied liens or mortgages, forged deeds or satisfactions, false impersonation of the true land owner, probate and trust matters, fraud, rights of divorced parties, mistakes in recording documents, and other hidden risks.
Why go through the hassle and expense of purchasing title insurance?
Well, for the majority of us the most important single investment we will ever make is the purchase of a home for our families. Buying a new home can be one of life's most rewarding experiences. So why not be protected for years to come. The last thing the home buyer needs is to be exposed to a future loss due to a past event. For a one-time premium, the purchaser/consumer can RELAX, secure in the fact that he or she is protected by title insurance.
What Title Insurance Protects Against
Listed below are a few of the most common risks that can cause a loss of title or create an encumbrance on title:
- False impersonation of the true owner of the property
- Unsatisfied mortgages, judgments or liens
- Forged deeds, releases or wills
- Errors in tax records
- Instruments executed under invalid or expired power of attorney
- Undisclosed or missing heirs
- Rights of divorced parties
- Encroachment of descriptions or improvements
- Mistakes in recording legal documents
- Deeds or other instruments signed by incompetent persons
- Forfeitures of real property due to criminal acts
- Probate matters
- Deeds by minors
- Deeds by persons supposedly single, but in fact married
- Liens for unpaid estate, inheritance, income or gift taxes