Title is a bundle of rights in real property. Protecting purchasers and lenders against loss is accomplished by the issuance of a title insurance policy. Usually, during a purchase transaction the lender requires a policy (commonly referred to as the Lender’s Policy) while the buyers receive their own policy (commonly referred to as an Owner’s Policy).
In short, the policy states that if the status of the title to a parcel or real property is other than as represented, and if the insured (either the owner or lender) suffers a loss as a result of a title defect, the insurer will reimburse the insured for that loss and any related legal expenses, up to the face amount of the policy subject to exceptions and exclusions contained in the policy.
What is meant by Title?
Title includes the legal details about the property in terms of its legal description, ownership, others’ interests in the property (such as liens against the property), any legal rights others may have regarding property usage (such as easements), and rules regarding what can be done to with the property (such as CC & Rs established when developed or by a Homeowners Association).
What is a Title Search?
A title search is done to determine 1) that the person who is selling the property actually has the right to sell it, 2) that the buyer is purchasing the correct parcel of land and 3) possible defects in title. A “title search” is really made up of three separate searches:
Rights established by judgment decrees, unpaid federal income taxes and mechanic liens all may be prior claims on the property, ahead of the buyer’s or lender’s rights. The title search will only uncover defects in title that are of public records and thus allowing the title company to work with the seller to clear up these issues and provide the new buyer with title insurance.
Typically there are two policies issued: The Lender’s Policy insures the lender for the amount of the loan, and the Owner’s Policy insures the purchaser for the purchase price.
How is Title Insurance Different Than Other Types of Insurance?
While the function of most other forms of insurance is risk assumption through the pooling of risks for losses arising out of unforeseen future events (such as sickness or accidents), the primary purpose of title insurance is to eliminate risks and prevent losses caused by defects in title arising out of events that have happened in the past. To achieve this goal, title insurers perform an extensive search and examination of the public records to determine whether there are any adverse claims (title defects) attached to the subject property. Said defects/claims are either eliminated prior to the issuance of a title policy or their existence is excepted from coverage. Your policy issued after the closing of your new home, for a one time nominal fee, and is good for as long as you own the property.
How Does Title Insurance Protect Me?
Title insurance is assurance that any defect in title to the land you are purchasing (which can be discovered from the public records) has been called to your attention and corrected before your transaction closes. Should there be a claim made against your title as covered by your policy, it is then the Title Company’s obligation to protect you by:
Defending your title, in court if necessary, at the Insurer’s expense
Bearing the cost of settling the claim if it proves to be valid, in order to perfect your title and keep you in possession of your property.