Buying a new home is one of life’s most gratifying experiences. As you approach the big day of closing, however, all the details can be a little overwhelming. You might easily overlook the single most important step in the entire process — the purchase of Title Insurance on the wonderful new home of yours.
A title is the evidence, or right, that a person has to the ownership and possession of land. It is possible that someone other than the owner has a legal right to the property. If that right can be established, this person can claim the property outright or make demands on the owner as to its use.
Most definitely! Title Insurance is a means of protecting yourself from financial loss in the event that problems develop regarding the rights to ownership of your property. There may be hidden title defects that even the most careful title search will not reveal. In addition to protection from financial loss, title insurance pays the cost of defending against any covered claim.
Any number of problems that remain undisclosed after even the most meticulous search of public records can make a title defective. These hidden “defects” are dangerous indeed because you may not learn of them for many months or years, yet they could force you to spend substantial sums on a legal defense, and still result in the loss of your property.
Title insurance is a contract to protect an owner against losses arising through defects in the title to the real estate, the title is insurable, and the company guarantees the owner against loss due to any defect in the title or expenses in defense of the title pursuant to the terms of the policy.
Title insurance is necessary to protect possibly the most important investment you’ll ever make in your home. It goes to great lengths to minimize the risk of lending you the money you need to buy a home. Your credit is clear an indication of your ability to pay back your loan. Then, your lender goes a step further. He or she makes sure the quality of the title to the property you are about to buy and which you will pledge as security for the loan is safe. The lender does this by obtaining a loan policy of title insurance. When a person buys consumer goods such as a car, they seldom need to know whether the former owner is married, single or divorced; whether they have paid their taxes or are involved in a lawsuit. But when a person buys a home it is necessary to have all that information and much more. For while he or she may own the property, others may have rights in the same real estate.
To name a few instances:
- Mistakes in recording of legal documents.
- Forged deeds, releases or wills.
- Undisclosed or missing heirs, including spouses.
- Deeds by persons of unsound mind.
- Deeds by minors.
- Deeds executed under invalid or expired power of attorney.
- Liens for unpaid taxes.
A title search is a detailed examination of the historical records concerning a property. These records include deed records, property and name indexes, and many other documents. The purpose of the search is to verify the title to transfer ownership, and to discover any claims, defect and other rights or burdens on the property. First, a service known as a title search describes the condition and quality of the title to the land you are buying. Your title insurance protects you against mistakes or threats that might otherwise result in financial loss to you for those hidden, unknown items. Your title insurance protection is a permanent assurance that your ownership and use will be defended promptly for claims at no cost to you, whether the claim is valid or not.
Because land is permanent and can have many owners over the years, various rights in land (such as mineral and utility rights) may have been acquitted by others by the time you come into possession of it, even if the land hasn’t before been built upon. So in order to transfer a clear title to a piece of land, it is first necessary to determine any rights are outstanding.
The cost is directly related to the value of the property. The higher the value, the more coverage is needed. That is small compared to the total purchase price. The premium is paid only once and remains in force for as long as the property is owned by the insured and continues to protect the insured on warranties after it is sold.
For as long as you or your heirs retain an interest in the property and, in some cases, even beyond.
If a claim is made against your property, title insurance will, in accordance with the terms of your policy, assures you legal defense – and pay all court costs and related fees. Also, if the claim proves valid, you will be reimbursed actual loss up to the face amount of the policy. WHAT DANGER OF LOSS CAN YOU FACE? If a lender has title insurance protection and you don’t, what possible danger of loss can you face? As an example, lets say you’ve bought a home for $150,000. You’ve made a $30,000 down payment, and your lender holds a $120,000 mortgage lien or beneficial interest. Your lender has title insurance coverage protecting his lien to $120,000.
The loan policy protect the lender against loss due to unknown title defects. It also protects the lender’s interest. In certain matters which may exist but may not be known at the time of sale. this policy only protect the lender’s interest. It does not protect you. That’s why you need an owner’s policy, to be issued at the same time as the loan policy for a nominal one-time fee. WHAT IF SOME MATTER ARISES AFFECTING THE PAST OWNERSHIP OF THE PROPERTY? The title insurance company would only defend and protect the interest of the lender. You would have to assume the financial burden of your own legal defense. If your defense is not successful, the result could be a total loss.