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 Title
Insurance: "Plain and Simple"
 See
Also: Property Ownership-The Whole Story
See
Also: Closings: A Home-Buyers Seminar
See
Also: Guide to Title Insurance Fees and Costs
What is title insurance?
Title insurance is the application of insurance principles
to hazards that are present in real estate titles. The actual
definition of title insurance is a composite of the answers
to the questions that follow.
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What is "title?"
"Title" is the foundation of ownership of property.
It means that you have a legal right to possess that property
and use it within the restrictions imposed by authorities
or limitations on its use-superimposed on the basic right
to possession by previous owners.
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Why does buying a home differ from all
other purchases?
Because the life of any other property isn't comparable
to the life of land. Owners die, new ones succeed, but land
lasts forever. People who own goods may change their locations
at will, but land is immobile. Because it's both permanent
and immovable, it lends itself to the absorption of innumerable
rights. Lawyers and jurists formed a separate body of laws
for land. These laws, creating many types of rights in land,
are so numerous and complicated that it's impossible for
there to be a mathematical certainty of ownership.
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What are some of the limitations and
restrictions commonly imposed on land?
Many common encumbrances can be placed on land. The most
common is a mortgage. As long as the mortgage (or any portion
of it) is outstanding, only a limited title can be passed.
Other common limitations include granting the right to cross
the property with electric and telephone lines, an underground
cable or sewer line. A family burial plot establishes a
sanctified spot for all time. An ordinance may restrict
land to residential use, or it may prohibit construction
of a building closer than a specified number of feet from
the street line.
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What is meant by a title defect?
A title defect is anything in the entire history of ownership
of a piece of real estate that may encumber the owner's
right to the "peaceful enjoyment" of the property
or that may cause the owner to lose any portion of the property.
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Why should I protect the home I buy with
title insurance?
Without title insurance, you become a self-insurer. This
isn't advisable unless you're in the financial position
to lose the money you have invested in your home without
upsetting your financial condition in any way.
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Is title insurance always used in property
transfers?
No. Sometimes the buyer considers an abstract of title sufficient.
Sometimes only a deed (usually a General Warranty Deed)
is required. In other cases, an attorney will offer an opinion
or certificate of title that a buyer might accept as sufficient
protection.
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Why isn't an attorney's opinion sufficient
if he or she has examined the title?
There are many title defects that even the most astute title
examination will not uncover. When that's the case, chance
of recovery in the event of a title loss depends entirely
on the solvency of the attorney examining the title, and
that attorney's liability is limited to errors and oversights
that would not be made by a diligent attorney. An attorney
is not liable for loss caused by hidden defects.
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Why won't a General Warranty Deed fully
protect me?
With a General Warranty Deed, the Grantor can pass on to
the Grantee only such title as he or she holds. It's true
that if title fails, the Buyer may have, under certain circumstances,
a cause of action against the Grantor, but the chance of
recovery depends entirely on the financial ability of the
Grantor to pay at the time the judgment is acquired-often
after a long and expensive court action. Title insurance
is a corporate guarantee of a company operating under the
rules and regulations of the insurance commission or other
state agency. The security afforded by any policy is controlled
by the integrity and financial structure of the company
issuing the policy.
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What's wrong with an abstract?
An abstract is simply a condensed version of the recorded
documents affecting title to the property. The limitations
on the liability of an abstracter who issues an abstract
are the same as those of an attorney who issues an opinion
of title.
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The contract I signed makes the sale
subject to title to the property's being good. Doesn't that
protect me?
Only on the surface. The Seller can't be sure the title
is good. Even a perfect-looking title may be seriously defective
with hidden defects. Then if anything should happen to defeat
your title, your cause of action would be against the Seller.
Your chance of recovery would depend on your finding and
suing the Seller, winning the suit, and, finally, on whether
or not the seller was able to pay the judgment. Regardless,
your attorney's fees and expenses would be a loss to you.
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If the real estate broker says the title
is good, isn't that enough?
No. The broker can't be sure that the title is good. No
one can.
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The mortgage lender is usually represented
by an attorney. Won't that attorney look out for my interests,
too?
Only coincidentally, to the extent as your interests and
those of the mortgage lender are the same. When a lender
retains an attorney, the attorney must look after the lender's
interests in any areas that may conflict with your own.
You should have your own attorney represent you, too.
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If I retain an attorney, can't I be
assured that my title is good?
All attorneys know that there are hazards in real estate
titles that cannot possibly be discovered with even the
most diligent search of the public records. For example,
the attorney can't be sure that the marital rights of all
previous owners have been properly relinquished; that all
mortgages, judgments, etc. affecting the property have been
properly indexed in the record room; that all signatures
on all recorded documents are genuine; that no unknown heir
of a former owner can appear to assert his or her claim.
These are just a few of the matters that can come up to
defeat real estate titles. Among others are fraud, duress,
infancy, insanity, impersonations, etc.
If you should suffer loss because of any "hidden defects"
in a real estate title, an attorney is not liable. Liability
extends only to losses caused by oversights or carelessness
in the attorney's work. That liability is limited by the
attorney's ability to pay, as well as by his or her life
span.
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When I buy a home and have it financed,
should I still have title insurance to safeguard my purchase?
Yes. While the title insurance coverage afforded the lender
and owner is somewhat the same, it's also considerably different
in important ways. Because of the diminishing debt of the
mortgage and the increasing equity of the owner in the property
as he or she makes payments, it's apparent that there could
be a complete title failure with the mortgagee suffering
no loss because of title insurance coverage and the owner
suffering substantial loss because he or she had no title
insurance. If the owner is not protected with an owner's
policy, it's entirely possible that payments made by the
title insurance company in the process of perfecting title
under a mortgagee policy can be made a lien against the
property second only to the mortgage under which the mortgage
policy was issued. The lien becomes, in effect, a junior
or secondary mortgage secured by the property and must be
paid off by the owner after the prior liens are paid, or
before the property can be sold.
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When I buy a home and the deed is recorded
in a record room, wouldn't that prove that I own the home
I bought?
No. It is only evidence that you have taken over whatever
rights the Grantor had in the property. For example, if
the deed to the Grantor had been forged, then the Grantor
had no rights to pass on to you. As another example, maybe
the driveway on your property had been made a joint driveway
by giving the next-door neighbor the right to use it. In
that case, the Grantor or Seller could not pass sole ownership
of the driveway on to you, no matter what the deed says.
The recorded deed is public notice that you have taken over
only those rights the Seller may have had in the property.
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Is title insurance as important as fire
insurance?
Yes, since your losses without title insurance can be greater
than fire losses. If a house burns, the land still remains
to be rebuilt on. If title to the property fails, you have
nothing. That's why owner's title insurance is always written
to cover the value of the house and lot.
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Does title insurance protect the safety
of my investment and the security of my home?
Yes, but title insurance can't eliminate title defects any
more than fire insurance can eliminate fire. However, title
insurance does 1: assure you of the best possible legal
defense if your title is attacked, and 2: reimburses you
up to the face amount of the policy if the title, or any
part of it, should fail.
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Why don't we see title losses reported
in newspapers?
A title loss is rarely as spectacular as a fire or hurricane,
and a title loss is not as immediate as those threats. When
a claim is made, it's followed by a long, involved court
action filled with legal technicalities that can be confusing.
All this is uninteresting to the press and its readers.
The actual loss may take place years after the claim is
made against the title. Perhaps within your experience you
have known of a title loss, or title dispute-for example,
a fight among heirs over a property or between neighbors
over a boundary line.
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Are there several kinds of title insurance?
Yes. One is the owner's policy, which the homebuyer needs
to protect him- or herself. Next there is the mortgagee's
policy, that protects only the mortgage company/money lender.
Most financial institutions lending money for mortgages
on a wide scale insist upon mortgagee title policies for
their protection. Also, there is a leasehold policy, which
is used primarily by commercial and industrial organizations
that rent property through long-term leases.
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How much does title insurance cost?
Local conditions affect premium rates. Sometimes rates are
prescribed by the state agency responsible for proper operation
of title insurance companies. The pure basic premium rate
for owner's title insurance varies within the narrow range
of $3.50 to $5.00 per $1,000 of coverage. Some areas combine
the "title insurance" rate with the charge for
title examination. Regardless of circumstances, this premium
is payable only once. There is no recurring premium, although
the policy is effective for as long as the insured or his
or her heirs have any interest whatsoever in the property,
and afterward so long as liability under any warranty of
title exists.
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Does the title insurance premium cover
the fee for searching the title?
No. However, in some areas, a "package rate" is
charged, which includes the attorney's or abstracter's search
fee and the title insurance premium. The entire "package
rate" is referred to as "title insurance."
If a title search fee is not shown as such on your closing
statement, the "title insurance" charge probably
will include the search fee plus the title insurance premium.
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When I buy a home and protect it with
title insurance, what happens in the event someone should
challenge my ownership of the property five or ten years
after the purchase?
You notify the title insurance company which, following
the terms in the policy, undertakes, at its expense, defense
of the title. If the claim reaches the courts, the title
company retains attorneys and bears the expense of defending
the suit. This is true whether your period of ownership
is a day or a generation or more.
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Is title insurance protection available
in the area where I plan to buy a home?
Most likely it is.
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What should I do to make sure the home
I buy will be safeguarded with title insurance?
Insist on title coverage at the initial stages of the transaction.
Your attorney will know how to get it.
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If the person I'm buying from has title
insurance, why do I also need it?
First and most obvious is that the previous owner could,
in a very short time, do all sorts of things to encumber
the title. For instance, he or she could grant easements
or construct improvements and encroach on adjacent property.
The deed into the new Buyer could be fatally defective because
of forgery or incompetence or any number of situations.
Also, if a title defect arises that antedates the date of
acquisition of the property by the Grantor to you, you would
have to take action against the Grantor under the terms
of the deed to you. In that case, as an insured, the title
insurance company would represent the defendant in your
action.
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How does title insurance help protect
my home investment?
It puts the assets of a corporation behind the title to
your home. If it's attacked, the title will be defended
without cost to you and if the title (or any part of it)
should be defective, you'll be reimbursed up to the face
amount of your policy for any financial loss incurred.
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How does title insurance protect both
me and my heirs and devisees?
A title insurance policy provides coverage from the time
of its effective date back to the origin of title. After
the property has passed to your heirs or devisees, if any
defect antedating the policy should arise, the title insurance
company would defend the title for your heirs and devisees
just as it would for you if you were alive. Or, if the property
were sold under a General Warranty Deed and the Buyer faced
a claim arising within the effective term of the policy,
the Buyer's action for recovery from you or your heirs would
be taken over by the title insurance company according to
the terms of the policy issued.
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Do many people actually lose their homes
because of title defects?
Not if they have title insurance! Title companies realize
how important it is to homeowners to keep their homes. Therefore,
when an insured title is found to be defective, the title
company does everything possible to perfect the title. Often
it is necessary to buy a claimant's right in the property
and transfer them to the insured. This is practically always
possible when only a partial interest is outstanding.
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Are all titles insurable?
No. Some companies must turn down some applications. Just
as fire insurance companies will not insure fire traps and
life companies will not insure seriously ill people, some
title companies will not insure a defective title. This
is one of the great values of title insurance service. If
the title is uninsurable, it is usually in such defective
state that no prudent Buyer would want it. If the contract
specifies that a sale is contingent upon good title being
passed on to the Buyer, the Buyer is not obligated to purchase
property with an uninsurable title.
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