Questions and Answers.....
about title insurance for prospective homeowners
(from Lawyers Title Insurance Corporation)
What is title insurance?
Title insurance is the application of insurance principles to hazards inherent in real estate titles.
That's a legalistic definition, we know. But in the century that title insurance has been used, no one in or out of the title insurance industry has ever been able to completely define title insurance in short, lay terms. Actually, the definition is the composite of answers to following questions.
What is "title"?
"Title" is the foundation of ownership of property. It means that you have a legal right to possess that property and to use it within the restrictions imposed by authorities or limitations on its use-superimposed on the basic right to possession by previous owners.
Why does buying a home differ from all other purchases?
No other property has a useful life that compares with the life of land. Owners die, new ones succeed, but land goes on forever. Owners of goods may change their locations at will, but land is immovable. Being both permanent and immovable, it lends itself to the absorption of innumerable rights. Over the ages, this so impressed lawyers and jurists that they formed a separate body of laws for land. These laws, creating many types of rights in land, are so numerous and so complex it is impossible for there to be a mathematical certainty of ownership.
What are some of the limitations and restrictions
commonly imposed on land?
There are many common encumbrances placed on land. The most common is mortgage. As long as the mortgage or any portion of it is outstanding, only a limited title can be passed. Other common limitations are the granting of 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. These are just a few of the many limitations that are placed on the uses of land.
What is meant by a title defect?
Boiled down, a title defect is anything in the entire history of ownership of a piece of real estate which may encumber the owner's right to the "peaceful enjoyment" of the property or which may cause the owner to lose any portion of the property.
Why should I protect the home I buy with title insurance?
Because without title insurance you become a self-insurer. This is inadvisable unless you are in a financial position to lose the money you have invested in your home without upsetting your financial condition in any way.
Is title insurance always used in property transfers?
No. Sometimes an abstract of title is considered sufficient by the purchaser. Sometimes only a deed (usually a General Warranty Deed) is required. And in other cases an attorney will offer an opinion or certificate of title which a purchaser might accept as sufficient protection.
Why isn't an attorney's opinion sufficient if he or she
has examined the title?
First, there are many title defects which even the most astute title examination will not uncover. Then, chance of recovery in the event of a title loss in this case depends entirely upon the solvency of the attorney examining the title and the attorney's liability is limited to errors and oversights that would not be made by a diligent attorney. The attorney is not liable for loss caused by hidden defects.
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 is true that if title fails, the purchaser may have, under some circumstances, a cause of action against the grantor, but the chance of recovery is dependent entirely upon the financial ability of the grantor to pay at the time that 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.
What's wrong with an abstract?
Nothing--so far as it goes. However, 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.
The contract I signed makes the sale subject to title to
the property's being good. Doesn't that protect me?
Only superficially. The seller cannot be sure the title is good. Even a perfect-looking title can be seriously defective because of 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 upon your finding and suing the seller, winning the suit and, finally, on whether or not the seller was able to pay the judgment. In any event, your attorney's fees and expenses would be a loss to you.
If the real estate broker says the title is good, isn't
No. The broker can't be sure, either, that the title is good. No one can.
The mortgage lender is usually represented by an
attorney. Won't that attorney look out for my interests, too?
Only coincidentally, insofar as your interests and those of the mortgage lender are the same. When an attorney is retained by the lender, the attorney must look after the lender's interest in any areas that might conflict with your own. You should have an attorney to represent you, too.
After I retain an attorney, can't I be assured that my
title is good?
Every attorney knows that there are hazards in real estate titles which cannot possibly be discovered with even the most diligent search of the public records. For instance, the attorney cannot 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 but a few of the matters that can crop up to defeat real estate titles. Among others are such circumstances as fraud, duress, infancy, insanity, false personations, etc.
An attorney is not liable if you should suffer loss because of any of the "hidden defects" in a real estate title. Liability extends only to losses caused by oversights or carelessness in the attorney's work. Then, too, liability is limited by the attorney's ability to pay, as well as by his or her life span.
When I buy a home and have it financed, should I still
have title insurance to safeguard my purchase?
By all means. While the title insurance coverage afforded the lender and owner is somewhat the same, it is also substantially different in important areas. Because of the diminishing debt of the mortgage and the increasing equity of the owner in the property as payments are made, it is 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. In fact, if the owner is not protected with an owner's policy, it is 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 second 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.
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 instance, if the deed to the grantor had been forged, then the grantor had no rights to pass on to you. As another example, perhaps 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.
Is title insurance as important as fire insurance?
Yes, because your losses without title insurance can be greater than fire losses. If a house burns, the land is still there on which to rebuild. If title to the property fails, you have nothing. That is why owner's title insurance is always written to cover the value of the house and lot.
Does title insurance protect the safety of my investment
and the security of my home?
Yes, although title insurance cannot eliminate title defects any more than fire insurance can eliminate fire. However, title insurance (1) assures 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.
Why don't we see title losses reported in the newspapers?
First, a title loss is rarely as spectacular as a fire or hurricane, and a title loss is not so immediate. A claim is made, and then there is usually a long, involved court action filled with legal technicalities that seem confusing and, so, uninteresting to the press and its readers. The actual loss, established in the courts, may take place years after the claim is made against the title.
Probably within your experience you have known of a title loss--or a title dispute--a fight among heirs over a property or between neighbors over a boundary line, for example.
Are there several kinds of title insurance?
There certainly are. First there is the owner's policy which the home purchaser needs for his or her protection. Then, there is the mortgagee's policy which protects only the mortgage/money lender. Most financial institutions lending mortgage money on a wide scale insist upon mortgagee title policies for their protection. Then there is a leasehold policy used primarily by commercial and industrial organizations that rent property on long-term leases.
How much does title insurance cost?
Because of local conditions, varying premium rates are established--sometimes, prescribed by the state agency responsible for the proper operation of title insurance companies. However, 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. In some areas the "title insurance" rate quoted to the public is a combined charge for title examination and title insurance. (See next question and answer). Under any circumstances, this premium is payable only once. There is no further charge--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 afterwards so long as liability under any warranty of title exists.
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."
It is well to remember that 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.
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, in accordance with the terms of 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.
Is title insurance protection available in the area where
I plan to buy a home?
Chances are it is. Lawyers Title insures properties throughout the United States, Canada, Puerto Rico, the Bahama Islands and the U.S. Virgin Islands.
What should I do in order 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 obtain it.
If the person I am buying from has title insurance, why
do I also need it?
The first and most obvious reason is that the previous owner could, in a very short time, do all sorts of things to encumber the title. Among other things, he or she could grant easements or construct improvements and encroach on adjacent property. The deed into the new purchaser could be fatally defective because of forgery or incompetence or any number of other circumstances.
In addition, if a title defect arises antedating 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.
How does title insurance help protect my home investment?
It places the assets of a corporation behind the title to your home. If attacked, the title will be defended without cost to you and if the title, or any part of it, should be defective, you will be reimbursed, up to the face amount of your policy, for any financial loss incurred.
How does title insurance protect both me and my heirs and
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 crop up, 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 purchaser faced a claim arising within the effective term of the policy, the purchaser'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.
Do many people actually lose their homes because of title
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 purchase a claimant's rights in the property and transfer them to the insured. This is practically always possible when only a partial interest is outstanding.
Are all titles insurable?
No indeed. Lawyers Title must turn down some applications. Just as fire insurance companies will not insure fire traps and life companies will not insure seriously sick persons, Lawyers Title will not insure a "sick" title.
This is one of the greatest values of title insurance service. If the title is uninsurable, then it is usually in such a "sick" state that no prudent purchaser would want it. If the contract specifies that a sale is contingent upon good title being passed on to the purchaser, the buyer is not obligated to purchase property with an uninsurable title.
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