Title Insurance Explained
When you purchase a home you'll be required to purchase and maintain many types of insurance. Title insurance is probably the least understood of these. So what is title insurance and why do you need it? We'll try to provide you with answers here.
When you purchase a home you're actually paying for title to the land; this means you acquire the right to occupy and use the space. Part of the price paid will be for the improvement, or the actual home, but the major cost of most property is the land itself. The title may be restricted by rights and claims of others; this could in turn limit your use and enjoyment of the property and even bring financial loss. Title insurance insures against these situations.
While other forms of insurance protect against future problems, title insurance protects against things which have already happened. Other forms of insurance also charge annual premiums while they insure. Due to the nature of protecting against problems from the past, on the other hand, title insurance is a one time premium.
A central aspect of title insurance is the elimination of risk prior to issuance of coverage. A claim or loss is a losing situation for all parties and every attempt is made to eliminate this possibility early on. The process of researching the history of a title begins with the public records. An agent for the title company investigates the title chain to determine if any "material objections" exist. These issues are normally the results of documents which did not transfer the title clearly. Examples of these documents would be:
- Deeds, wills and trusts that contain improper wording or incorrect names;
- Outstanding mortgages and judgments, or a lien against the property because the seller has not paid his taxes;
- Easements that allow construction of a road or utility line;
- Pending legal action against the property that could affect a purchaser; or
- Incorrect notary acknowledgements.
These matters are identified and corrected early in the process whenever possible. Despite all of the hard work and research that goes into a title search, there are undetectable problems which can surface later and cause financial hardship or even loss of the property. Some problems which are often undetectable include:
- A forged signature on the deed, which would mean no transfer of ownership;
- An unknown heir of a previous owner claiming ownership of the property;
- Instruments executed under an expired or a fabricated power of attorney; or
- Mistakes in the public records.
It's these types of situations where title insurance becomes the most valuable. The insurer has certified that the title is transferable and is responsible for defending against claims as they arise. This could involve perfecting the title or paying out for valid claims. These are often complicated and expensive legal proceedings; placing the onus of responsibility on the insurer will allow you to avoid the costs and stress involved.
If your home is important to you, don't overlook this important piece of insurance. If you have more questions, consult with an attorney or industry professional until you understand your rights and obligations.
Contact us today to learn more about title insurance or any other real estate matters!
*Please bear in mind that the information supplied in our articles is not engaged in rendering legal, financial, or any other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.
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