Title Insurance covers what could have already happened, not what may happen in the future -
Unlike auto or homeowners hazard insurance, title insurance coverage ends on the day it is issued, extendsbackward in time, and lasts until the property is sold.
And because it's so misunderstood, many buyers look at it as just another vague (possibly unnecessary) expense they have to pay at the closing table. Let's address that today.
Owning real estate is about the rights an owner may exercise concerning the use and occupancy of a property. These rights are transferred each time the property is sold to a new owner.
Title is a general concept that expresses ownership.
It refers to an understanding and acceptance of owners' rights.
A Deed is the written document that specifically
describes and acknowledges that ownership.
Deeds are recorded with the local town, city, or county.
Depending on a property's location and use, the history of owners may go back hundreds of years. This is especially true in older US cities and towns that may have been founded and settled in the 1700s or 1800s.
Title Insurance protects the current owner from losses brought on by claims against his/her rights that weren't known when a property was purchased and the previous owner's right and ability to transfer ownership were investigated and evaluated.
Claims against title might result from:
- Incorrect boundaries from an improper survey
- Buildings encroaching on easements and/or lot lines
- Unpaid tax liens or unsatisfied mortgages
- Homestead rights under Florida law
- Errors or omissions in identifying the property or owners
- Previous owner's spouse, ex-spouse, heirs making claim
- Earlier seller fraudulently selling to multiple buyers
- Outstanding judgement against owner attaches to property
- Liens filed seeking payment for property repairs or services
Adverse claims against property rights can be brought for any reason - some valid, some frivolous, some fraudulent.
Title companies and closing attorneys' offices try to find any of these attachments, liens, and title defects through a Title Searchperformed prior to closing.
In a Title Search, earlier recorded deeds, court records, property indexes, and other sources of information are closely examined to reveal any possible defects, encumbrances, and restrictions that attached to the property over the years.
Any of these could prevent the current owner from legally and freely selling the property. They could also limit the anticipated use of the property by a new owner.
The history of previous consecutive owners and transfers is known as the "chain of title".
Once the title company or closing attorney's office is satisfied that a property has "clear title", a Title Insurance policy can be issued which protects the new owner from the complications we just mentioned.
So...if title agents and attorneys have already checked
for title defects, why is insurance needed?
Because even with a careful and diligent Title Search, there can be hidden hazards from the past affecting the new owner's property rights in the future.
Such hidden hazards may include:
- Forged documents and other types of fraud
- Inaccurate deed description; deed transfer issues
- Similar or identical owner names (including Sr, Jr)
|The Title Insurance policy begins on the issue date, though the coverage period ends at the same time.|
It protects the buyer from claims against his or her property rights (like the ones we just discussed) extending back through the previous owners and ownership transfers (chain of title).
A claim against ownership can result in lawsuits, liens, inability to sell or refinance the property, and even an owner losing title to the property in favor of the claimant.
Claims against title should not be taken lightly.
An owner's (buyer's) Title Insurance policy is for the full value of the real estate purchase and lasts as long as the current insured owners or their heirs have an uninterrupted ownership interest in the property.
Title Insurance premiums are a one-time, single payment
made at closing. Local practice determines whether the seller or buyer pays the owner's premium at closing.
When there is mortgage financing on the purchase, lenders also want to be protected from adverse claims to ownership, so they require a separate lender's Title Insurance policy. The lender's policy is usually a nominal additional premium if written along with the owner's policy, and it has slightly different coverage amounts and terms.
A lender's title policy is in the amount of the mortgage loan, notthe total purchase value, and the coverage amount decreases each year as the loan principal is paid down.
When the loan is paid in full, the lender's policy is no longer needed so it expires, while the owner's policy continues until the property is sold.
If the current owner refinances the same property, the owner's policy usually continues in force, and a new lender's policy is started.
There we are - a brief and general overview of the whys and
hows of title insurance. As with many topics in real estate, there is a vast amount of information regarding owners' rights, title policy coverage, claims against title, and how all of these relate to local real estate law.
For more detailed information -
speak with a licensed title agent or settlement attorney.
Title companies and settlement attorneys fill the role of manager and conductor (sometimes circus ringmaster) of the closing process. They bring together both sides of the transaction along with insurance, tax, and lending components, and somehow it all seems to work out.
I enjoy coordinating things with title agents and attorneys as the transaction progresses. That way I stay involved in the deal all the way to the closing table, helping guide our mutual client to an informed, efficient, and comfortable settlement.
Call me when you have buyers who want to use financing and feel they may benefit from that type of attentive service. Your trip to the closing table will be much smoother when you do.
Let me reinforce the trust
your buyer has placed in you!
Information provided by Chris Carter. Please see his information below.
239 898-5455 cell
Paramount Residential Mortgage Group, Inc
4375 Radio Rd
Naples, FL 34104
239 659-1660 office
Copyright Chris Carter 2015