Just about everybody has insurance of one form or another, and most everyone understands why insurance is important. Automobile insurance, for example, protects the vehicle, occupants, and covers any liability if the insured is involved in an accident. Medical insurance protects someone if they get sick or hurt. Homeowners insurance protects against losses regarding our homes. The basic idea of these types of insurance is easy to understand.
But what about title insurance? Most people are hard pressed to give a definition of title insurance. Here’s the official definition –
“Title insurance gives you the assurance that possible clouds on title to the property you are purchasing – which can be discovered from the public records – have been called to your attention so that such defects can be corrected before you buy. Additionally, it is insurance that if any undiscovered claims covered by your policy arises out of the past to threaten your ownership of real estate, it will be disposed of, or you will be reimbursed exactly as your title insurance policy provides.”
Let’s look at the two main components – the title search for defects or clouds before you buy and claims that arise in the future.
1. The title search is done when an escrow is opened. A Commitment for Title Insurance is prepared, and it details any problems or items that must be addressed before a title insurance policy will be issued. Some examples of these items are:
- Release of current deed(s) of trust against property
- Payment of property taxes
- Payment of any HOA dues or assessments
- Release of any judgments
- Release of any federal or state tax liens
The Escrow Officer addresses each item to make sure it is taken care of prior to close of escrow. This allows the buyer to know that they are receiving title, or the deed to that property, free from any clouds or defects.
2. Claims that arise in the future occur when an item that could not be discovered by the search of the public records is discovered. Examples of these items are:
- False impersonation of the true owner of the property
- Forged deed, releases or wills
- Instruments executed under invalid or expired power of attorney;
- Undisclosed or missing heirs
- Mistakes in recording legal documents
- Misinterpretations of wills
- Deeds by persons of unsound mind
- Deeds by minors
- Deeds by persons supposedly single, but in fact married
- Fraud
- Liens for unpaid estate, inheritance, income or gift taxes
Should any of these items occur prior to the purchase of the home, but become discovered after close of escrow, they are covered under the terms of the title insurance policy.
Title insurance covers the property as long as the owner or the owner’s heirs retain ownership of the property. Unlike nearly every other type of insurance, there is no annual premium for title insurance. It is a one-time policy premium covering the property until it is sold. If any of the above issues occur, simply contact your title company and file a claim.The title insurer is responsible for defending your title, in court if necessary, at no cost to you, and bearing the cost of settling the case, if it proves valid, in order to protect your title and maintain your possession of your property.
Hopefully this sheds a little light on an often misunderstood piece of the home buying transaction. If you have further questions, feel free to send them to Bill Risser at risserb@ctt.com.
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