December, 2006
Why Title Insurance?
Reprinted from American Land Title Association
When purchasing a home or other real estate, you actually don't receive the land itself. What you acquire
is title to the property — which may be limited by rights and claims asserted by others.
Problems with title can limit your use and enjoyment or real estate, as well as bring financial loss. Title
trouble also can threaten the security interest your mortgage lender holds in the property.
Protection against hazards of title is available through a unique coverage known as title insurance. 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 already existing in the title.
It's Important to Know The Difference
There are two basic 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 interest in the property concerned. This may even be after the insured has
sold the property.
The amount of lenders title insurance decreases and eventually disappears as the loan is paid off. Most
lenders require mortgage 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 risk elimination before insuring. This means the
insured 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 real estate
concerned. The examination of 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 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
- Easements
- Incorrect notary acknowledgements
Through the search and the examination, title problems like these are disclosed so they can be cleared up
whenever possible. But even the most careful preventive work cannot locate hidden hazards of title.
Hidden Title Hazards-Unpleasant Surprise
In spite of all the expertise and dedication that go into a search and examination, hidden hazards can
emerge after completion of a real estate purchase, causing an unpleasant and costly surprise. Some
example include the following:
- A forged deed that transfers no title to real estate
- Previously undisclosed heirs with claims against the property
- Instruments executed under expired or fabrication power of attorney
- Mistakes in the public records
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.
Insist on Title Insurance
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.
Only title insurance issued through member of the American Land Title Association offers the unique
safeguards that are essential for secure investment by both real estate purchasers and lenders. Make sure
you are fully protected. Insist on a title insurance policy.
