The title insurance industry has been protecting real estate investments for more than a century. Today the objective of title insurance is the same as it has always been… to help the parties involved in a real estate transaction determine their rights and interests, and to provide them the assurance that the transfer of land title will be expeditious and secure.
Title insurance is different from other types of insurance coverage in that it emphasizes risk prevention rather than risk assumption, and the buyer makes a onetime premium payment that is modest in relation to the overall value of the property. Risk prevention begins with a thorough title search of public records by skilled professionals. Most title problems can be identified in a title search and then resolved by title professionals before closing. There are sometimes though hidden hazards that even the most thorough title search will not reveal. A few of the many risks that title insurance covers are:
- undisclosed or missing heirs
- gaps in the chain of title
- wills not probated
- recording errors in the public records
- forgeries in the chain of title, forged mortgage releases, etc…
- instruments executed under fabricated or expired powers of attorney
- transfer of title through a foreclosure sale where requirements of foreclosure statutes have not been strictly met
There are two types of title insurance. An Owner’s Policy protects the buyer, and a Lender’s Policy protects the lender. If a buyer is borrowing funds to purchase real estate, the lender will require the issuance of a Lender’s Policy. This policy will be issued in the amount of the loan and assures a lender of the validity of title serving as protection for the lender’s security interest in the property.
A Lender’s Policy does not protect the buyer’s equity, therefore a separate Owner’s Policy is necessary. When a Buyer purchases an Owner’s Policy, he or she can be assured that if a serious cloud on the title goes undetected they will not face financial loss or possibly the right to their property all together. They will also have peace of mind in knowing that when they decide to sell the property their title is marketable.
This information was obtained from the American Land Title Association (ALTA), the national trade association for the title industry that represents abstractors, title insurance agents and title insurance underwriting companies. If you are considering the purchase of land, it is recommended that you consult with a real estate attorney regarding title insurance.