Title Insurance Overview
What Is Title Insurance?
Title Insurance is protection against loss arising from problems connected to the title of your property.
Before you purchased your home, it may have gone through several ownership changes, and the land on which it stands went through many more. There may be a weak link at any point in that chain that could emerge to cause trouble. For example, someone along the way may have forged a signature in transferring title. Or there may be unpaid real estate taxes or other liens. Title insurance covers the insured party for any claims and legal fees that arise out of such problems.
Is Purchasing Title Insurance Obligatory?
It is if you need a mortgage, because all mortgage lenders require such protection for an amount equal to the loan. It lasts until the loan is repaid. As with mortgage insurance, it protects the lender but you pay the premium, which is a single payment made upfront.
Does Title Insurance Do Anything For Me?
The required insurance protects the lender up to the amount of the mortgage, but it doesn’t protect your equity in the property. For that you need an owner’s title policy for the full value of the home. In many areas, sellers pay for the owner’s policy as part of their obligation to deliver good title to the buyer. In other areas, borrowers must buy it as an add-on to the lender policy. It is advisable to do this because the additional cost above the cost of the lender policy is relatively small.
Doesn’t the Lender Policy Indirectly Protect me?
No, title policies are indemnity policies, they protect against loss, and a lender policy would only cover the lender’s loss.
When Does Title Insurance Protection Begin and End?
Title insurance only protects against losses arising from events that occurred prior to the date of the policy. Coverage ends on the day the policy is issued and extends backward in time for an indefinite period.
Benefits for the Purchaser of Real Estate
The purchaser of real estate needs protection against signifigant financial loss due to title defects to the property they are aquiring.
For a single, one-time premium paid at closing, the buyer will recieve the full protection of the owner's policy of title insurance up to the full purchase price of the home, plus any legal expenses they would incur in fighting off a title claim against their property. The premium itself is only a fraction of the amount of coverage gained by the policy, and the coverage lasts as long as the purchaser, or their heirs, own the home. An owner's title insurnace policy will cover both claims arising out of title problems that could have been discovered in the public records, and many of those so-called 'non-record' defects that could not be discovered in the record, even with the most complete search. Not only will the company satisfy any claim made against the insured's title to the property, but it will pay for the costs and legal expenses of defending against a title claim.
Benefits for the Lender
Most every traditional lender in the country insists upon their borrowers purchasing a lender's policy of title insurance for each mortgage loan that is secured by real estate. In the same way that they require a homeowner's insurance policy to protect their collateral from fire or disaster should its value be diminished in such a way, they require a title insurnace policy to protect their interest in the collateral should a title claim ever occur and infringe upon their interest in the property. This protection remains in effect so as long as the mortgage is outstanding, and the policy protection ceases when the mortgage is satisfied.
Benefits for the Seller
An owner of real property whose interest is insured by an owner's title insurance policy has the assurance that the title will be 'marketable' when selling the property. The title insurance policy protects the seller from financial damage if the seller's title is rejected by a prospective purchaser.
The experienced staff at Capstone title are always available to answer any questions you or your client may have about their policy or the title insurance process.
The Johnsons, an example of the value of Title Insurance
Thirty years later, in 1996, their neighbors have sold a 100 acre tract of vacant land adjacent to their home to a developer. About this same time, Mrs. Johnson begins to have serious medical problems, and their large family home is no longer necessary, and they decide to sell it and move to a smaller, more affordable home.
The developer has laid out their plans for the development, however, in doing so, both the Johnsons and the Developer find that the Johnson's driveway extends through part this 100 acre tract of future condos to the road. This being the only access to the Johnson's property, the Johnsons look for a way to prevent the developer from continuing with their plans, and ruining the value of their home, as it would then have no access from the street.
The developer's attorneys find no easement or right-of-way that grants the Johnson's access to their driveway, and continue with their plans for the development, not including access to the Johnson’s home whatsoever. Already short on funds, and trying to sell their home, which will soon drop in value considerably should the developer finalize their plan and restrict the property’s access, the Johnsons remember their title insurance policy and contact their Title Insurance Underwriter.
Immediately the underwriter and their team of attorneys begin researching and file suit against the developer. After weeks of expensive litigation, paid for by the Title Insurance Company, the suit continues on. The title underwriters highly experienced legal team researches public records, easements, roads, plats, and deeds back further in time, until they find a 100 year old recorded land map of the area. On this recorded map is a wagon road which runs in the same place as the Johnson’s current driveway. The underwriter’s attorneys also know about an obscure law that grants an automatic easement to all former wagon roads in that state. They take this 100 year old map record, relate it to the law, and after a few months of expensive court battles, the Johnsons and the Underwriter win the lawsuit, and the developer is forced to include access to the Johnson’s property in their plans, and the Johnson’s are able to sell their home as they wanted to in the first place. Not only have the Johnson’s been able to maintain the value of their property, but because of their purchase of an Owner’s policy of title insurance, they are able to have experienced land title attorneys fight for their case, and all at the title insurance company’s expense.
Without the purchase of the Owner’s policy, the Johnson’s would more than likely not have been able to afford the specialized land title attorneys necessary to win the suit, but would have lost all of the value they have invested in their home over the years, all because of a simple title defect that went undiscovered when they purchased their home.
For more ways that Owner's Title Insurance can protect a homeowner, please click Here for a list from First American.
The Washington Post also has a great article about owners title insurance Here.
Tips for a Successful Closing
You will want to have the following items on hand when you go to your closing. Be sure and ask your Escrow Officer or Broker as these items vary by state.
~Buyer's copy of the purchase agreement.
~Certified Bank Check for any funds brought to closing (Personal Checks will not be accepted) made out to the Settlement Agent handling the transaction. Wire transfers are sometimes also accepted.
~Seller's Copy of purchase agreement.
~Receipts for last payment of interest on mortgages
~Bill of Sale of personal property covered by the purchase agreement
~Proof of Satisfaction of any mechanic's liens, chattel mortgages, judgments, or mortgages that were paid prior to closing
Also, any party in the transaction which will be signing by Power of Attorney must notify the Title Company in advance. A copy will need to be obtained by the title company well in advance of the closing to ensure that it is valid for the transaction. Not doing so will delay your closing.
Please contact us at any time if you have questions about your closing, and we will be happy to answer them to ensure an easy transaction for all parties.
Capstone Title Services, LLC
2401 Regency Road Suite 301
Lexington, KY 40503-2914
Toll Free: 800-350-5267