What Is Title Insurance And What Does It Do?
Problems with title can limit your use and enjoyment of real estate, as well as bring financial loss. Title trouble also can threaten the security interest your mortgage lender holds in the property.
What do title companies do?
Title insurance companies provide protection against hazards of title and unlike other kinds of insurance that focus on possible future events and charge an annual premium, title insurance is purchased for a one-time payment and is a safeguard against loss arising from hazards and defects existing in the title – prior to your insured ownership.
There are two kinds of Title Insurance
- Owners coverage
- Lenders, or mortgagee, protection
Owners title insurance ordinarily is issued in the amount of the real estate purchase and lasts as long as the insured – or his/her heirs have an interest in the property concerned. This may even be after the insured has sold the property.
Lenders title insurance decreases and eventually disappears as the loan is paid off. Most lenders require mortgagee title insurance as security for their investment in real estate, just as they may call for fire insurance and other types of coverage as investor protection.
Risk elimination before Insuring
An important part of title insurance is its emphasis on eliminating title risks before insuring. This means the insured buyer has the best possible chance for avoiding title claim and loss. Title insuring begins with a search of public land records for matters affecting the title to the subject real estate. The examination of documentary evidence from a search is intended to fully report all material objections to the title.
Frequently, instruments that don’t clearly pass title are found in the ‘chain’, or history, of ownership assembled from the records in a search. These deficient transfers need to be corrected before a clear title can be conveyed.
Here are some examples of instruments that can present concerns:
- Deeds, wills and trusts that contain improper vestings and incorrect names.
- Outstanding mortgages, judgments and tax liens.
- Incorrect notary acknowledgments.
Hidden Title Hazards – Unpleasant Surprises
In spite of the expertise and dedication that go into a title search and examination, hidden hazards can emerge after completion of a real estate purchase, causing an unpleasant and costly surprise.
Some examples are:
- A forged deed that transfers no title to real estate.
- Previously undisclosed heirs with claims against the property.
- Instruments executed under expired or fabricated powers of attorney.
- Mistakes in the public records.
What Is title Insurance?
Title insurance offers financial protection against these and other hidden hazards through negotiation by the title insurer with third parties, payment for defending against an attack on title as insured, and payment of claims. Because of title insurance, home buyers can enjoy complete protection against claim and loss. When title insurance is provided, lenders are willing to make mortgage money available in distant locales where they know little about market conditions. Make sure that you are fully protected. Insist on a title insurance policy from National Title Company.
Why is Title Insurance Important?
Title Insurance is an Economical and Prudent Step in Secure Real Estate Investing. There are few things in life more important than protecting your home. The following matters are examples of why you need a National Title insurance policy protecting your real properties. Remember that the best title examination or search cannot protect your equity and home from matters not appearing in the public records, or from human errors. However, a title insurance policy from National Title can protect you from:
- Documents executed under false, revoked or expired powers of attorney.
- False Impersonation of the true landowner.
- Undisclosed heirs.
- Defective acknowledgments due to improper or expired notarization.
- Corporate franchise taxes as liens on corporate real estate assets.
- Gaps in the chain of title.
- Mistakes and omissions resulting in improper examination. 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 of 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 conveyancing instruments.
- Deeds and wills by persons lacking legal capacity.
- State inheritance and gift tax liens.
- Errors in tax records.
- Demolition and substandard building liens.
- Administration of estate and probate of wills of missing persons who are presumed deceased.
- Issues of rightful possession of the land.
- Issues concerning the rightful conveyances by corporate entities.
- Deeds and mortgages by foreigners who may lack legal capacity to hold title.
- Legal capacity of foreign personal representatives and trustees. Issues involving improper marital status.
- Improper modification of documents.
- Rights of divorced parties.
- Conveyances in violation of public policy.
- Misinterpretation of wills and ancillary instruments.
- Deeds by persons falsely representing their marital status. Claims by creditors of decedent against property improperly conveyed by heirs and devisees.
- Special taxes assessments.
- Real estate homestead exceptions.
- Conveyances and proceedings affecting rights of military personnel protected by the Soldiers’ and Sailors’ Civil Relief Act.
- Issues concerning interests noted in financial statements filed under Uniform Commercial Code.
- Interests arising by deeds of fictitious parties.
- Lack of jurisdiction or competency of persons in judicial proceedings.
- Community property issues.
- Utility easements.
- False affidavits of death or heirship.
- In testate estates.
- Probate matters.
- Federal estate and gift tax liens, and many more matters disclosed, or undisclosed by the public record.
What does Title Insurance cost?
The premium for an Owner Policy is based upon the purchase price; the premium for the Mortgagee Policy is based on the amount of the loan. However, if both policies are issued at the same time (as in the event of a typical property sale wherein the buyer is financing the purchase of the property through a third party lender), the Mortgagee Policy premium is not based on the full premium rate set by loan amount. Instead, there is only a nominal charge for the Mortgagee Policy, usually ranging from $100 – $175.00, depending upon the coverage a lender desires.
What do title insurance companies do to insure you?
A title insurance policy requires only a one-time premium charge for as long as the owner has an interest in the property. Title companies insure risks for a specific period in the past, as opposed to all other kinds of insurance such as life, automobile, and homeowners insurance policies that insure future risks. Title companies obtain information regarding the history of the property, disclose all information, and insure against any future title issues stemming from prior owners.
What is Escrow and why is it needed?
An escrow is an arrangement in which a disinterested third party, usually the title company, holds legal documents and funds on behalf of the buyer, seller, and lender, and distributes them according to the buyers, sellers, and lender’s instructions. An escrow is convenient for all involved because each party can move forward separately but simultaneously in providing inspections, reports, loan commitments and funds, documents, and many other items, using the escrow holder as the central depositing point.
The escrow agent is responsible for processing and coordinating the flow of documents and funds, keeping all parties informed of progress, responding to the lenders requirements, coordinating legal document preparation and title work, prorating taxes and other items, preparing the final settlement statement of closing for each party, obtaining proper approval of documents and proper signatures, disbursing funds for title insurance, real estate commissions, line clearances, etc., and recording the deed and other documents.