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Frequently Asked Questions

Title insurance , especially owner's title insurance, is extremely important when purchasing a house or piece of property. Yet many consumers are unsure about what title insurance is and what it protects against. Here are some answers to the more common questions about title insurance.

Choose a question from the list below:

Why do I even need to use a title company?

"Why is it all so complicated?" you might ask. "When we buy or sell property, why do we have to use escrow?" The reason is that escrow is a way of protecting everyone participating in a real estate transaction. When real estate is sold, the title to ownership of the property passes from the Seller to the Buyer. And, today, even the simple sale of a residential property can involve a lot of money.

As a Seller you do not want to give up title to your property before you receive payment for it. And as a Buyer you do not want to part with your funds before receiving a clear title to the property. The Seller may have a mortgage on the property which must be paid off before the title is clear. And other claims - such as taxes, insurance, and liens - must be satisfied before a clear title can pass to the Buyer.

A Buyer may be taking out a mortgage, which means his or her lender will have a claim against the property. And the Buyer may have others involved, who will make a claim against the property. All of these parties want to be sure that their rights are protected and that they receive the money or property to which they are entitled.

Escrow and closing is the way all this is handled.

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What is title insurance?

Title Insurance is an indemnity against a loss resulting from defects in title to the property. This is a one-time fee, which will pay for any expenses in defense of any lawsuit brought against the insured title. There are two types of Title Insurance policies: An Owner's policy, which insures the new owner of the property and a Lender's Policy, which insures the mortgage company holding the lien on the property.

Owner's Policy insurance is usually issued in the amount of the real estate purchase. It is purchased for a one-time fee at closing and lasts as long as you or your heirs have an interest in the property. This may even be after the insured has sold the property. Only Owner's title insurance fully protects the buyer should a problem arise with the title that was not uncovered during the title search. Owner's title insurance also pays for any legal fees involved in defending a claim to your title.

Lenders Policy insurance, also called a Loan Policy, and Owner's title insurance. Most lenders require a Loan Policy when they issue you a loan. It protects the lender's interests in the property should a problem with the title arise.

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If I have Title Insurance, why does my lender need it as well?

You both want to be protected. You will be protecting your interest by making sure that if something is wrong with your title, you will have a Title Insurance Company to clear any problems.

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If a search is done on the property and it has clear title ... then the title is clear, and I shouldn't need title insurance, right?

Not necessarily. The land you live on has existed since the earth was created, and ownership has transferred numerous time since the earliest settlers. If any of the documents were recorded incorrectly or can be proven to have been forged, then the ownership of the property would be in question. Title Insurance protects you from these mistakes!

The following are just a few of the common Hidden Risks that can cause a defect in your title:

  • Mistakes in recording legal documents, i.e. indexing incorrectly
  • Unsatisfactory acknowledgment by notary i.e. notary commission is expired
  • Forged documents such as deeds, mortgages, satisfaction of mortgages
  • Impersonation of the true owners of the property signing documents

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Why does the closing take place at the Title Company?

The Title Company will perform a search on the existing property to provide the buyer and lender with clear title to the property. The Title Company may also coordinate and collect information from the termite company, land surveyor, hazard insurance company and real estate agent (if applicable) to complete the closing.

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What are my closing costs?

Your closing costs will depend on the type of mortgage that your buyer will be obtaining. Each type of mortgage has specific fees that must be paid by each particular party. There are 3 basic types of mortgages, VA, FHA, and Conventional. Under each type of mortgage you will find a list of fees, and the party responsible for paying them. Keep in mind that not all mortgage companies will charge all of the fees that are listed, and all fees are estimated.

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How Am I Protected?
In order to issue title insurance, the title company must search public land records for matters affecting that title. Many search the "chain" of title back 50 years. Twenty-five percent of title searches find a title problem that is fixed before the insurance is issued. Some examples of items that can cause a problem are: deeds, wills and trust that contain improper information; outstanding judgments or tax liens against the property; and easements. Title companies fix the problems then issue the title insurance.

Occasionally, in spite of an exhaustive title search, hidden hazards can emerge after closing. Things such as mistakes in the public record, previously undisclosed heirs claming to own the property; or forged deeds could cloud the title. Owner's title insurance offers financial protection against these by negotiating with third-parties, and paying claims and the legal fees involved in defending the title.

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Common Title Problems
Here are three short stories on some common title problems:

Fraud & Forgery

Those involved in real estate fraud and forgery can be clever and persistent. which can spell trouble for your home purchase.

In a western state, an innocent buyer purchased an attractive home site through a realty company, accepting a notarized deed from the seller. Then another couple, the true owners of the property who lived in another locale suddenly appeared and initiated legal action to prove their interest in the real estate was valid. Under the owner's title insurance policy of the innocent buyer, the title company provided a money settlement to protect against financial loss. As it turned out, the forger spent time in advance at the local court house, searching the public records to locate property with out of town owners who had been in possession for an extended period of time. The individual involved then forged and recorded a deed to a fictitious person and assumed the identity of that person before listing the property for sale to an innocent purchaser, handling moot contracts through an answering service. Also, the identity of the notary appearing on deeds was fictitious as well.

Fraud and forgery are examples of hidden title hazards that can remain undetected until after a closing despite the most careful precautions. Although emphasizing risk elimination, an owner's title insurance policy protects financially through negotiation by the insurer with third parties, payment for defending against an attack on the title as insured, and payment of valid claims.

Conflicting Wills

Conflicts over a will from a deceased former owner may suggest a study topic for law school. But the subject can take on a reality dimension and all too quickly your home ownership is at stake.

Alter purchasing a residence, the new owner was startled when a brother of the seller claimed an ownership interest and sought a substantial amount of money as his share. It seemed that their late mother had given the house to the son making the challenge, who placed the deed in his drawer without recording it at the court house. Some 20 years later, after the death of the mother, the deed was discovered and then filed. Permission was granted in probate court to remove the property from the late mother's estate, and the brother to whom the residence initially was given sold the house. But the other brother appealed the probate court decision, claiming their mother really did not intend to give the house to his sibling. Ultimately, the appeal was upheld and the new owner faced a significant financial loss. Since the new owner had acquired owner's title insurance upon purchasing the real estate, the title company paid the claim, along with an additional amount in legal fees incurred during the defense.

Missing Heirs

When buying a home, it's important to remember what you don't know can cost you. As an example illustrating the need for precautions, The American Land Title Association pointed to a couple who purchased a residence from a widow and her daughter, the only known heirs of the husband and father who died without leaving a will.

Soon after the sale, a man appeared - claiming he was the son of the late owner by a former marriage. As it turned out, he indeed was the son of the deceased man. This legal heir disapproved of his father's remarriage and had vanished when the wedding took place. Nonetheless, the son was entitled to a share of the value of the home, which meant an expensive problem for the unwary couple purchasing the property.

Although the absence of a will hindered discovery of the missing heir in a title search of the public records, a one-time charge at closing, owner's title insurance will safeguard against problems including those even an exhaustive search will not reveal.

Source: American Land Title Association. Used by permission. [ Back to Top ]

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