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With few exceptions, a home
represents the largest single investment most people
make in their lifetime. Thus it is only natural that
an owner will want to make that investment secure by
protecting the basic proof of ownership. Title
Insurance is the most effective and lowest cost way
of doing just that.
What
is a Title?
A title is the evidence or right
which a person has to the ownership and possession
of land. A defect in that title can be any legal
right held by someone other than the owner to claim
property or to make demands on the owner of that
property.
What
is Title Insurance?
Most kinds of insurance are
self-explanatory. Fire insurance protects against
losses from fire. Collision insurance guards against
the cost of a dented, damaged car. But what does it
mean to insure your title to real estate?
Real estate has always been considered a valuable
possession. It is so basic a form of wealth that
many special laws have been enacted to protect
ownership of land and
the buildings which stand on the land.
You should realize whenever you buy property that
the owner who is selling it to you has extremely
strong rights, as do his family and heirs.
Also, there may be others - in addition to the owner
- who have "rights" in the property you
are going to buy. These may be governmental bodies,
or contractors who performed work on the property,
or other individuals who have perfectly proper
unpaid claims against the property.
Anyone who has such a claim is, in a sense, a
part-owner. The property may be sold - to you -
without the party who has a claim knowing about the
sale. And you may know nothing about such a claim at
the time you buy. It doesn't matter. Such claims may
remain attached to the real estate you have
purchased.
Title insurance is therefore a
contract to protect an owner against losses arising
through defects in the title to real estate owned.
If the title is insurable, the company guarantees
the owner against loss due to any defect in title or
expenses in legal defense of the title pursuant to
the terms of the policy.
What
can make a Title defective?
There are many possible causes of
title defects that no examination can disclose. That
is because they have never been recorded and thus do
not appear in the abstract. A title insurance policy
protects the owner against all these hidden risks;
those listed below and many more:
Fraud
False claims of ownership, forged
deeds, wills, signatures, conveyances, instruments,
false representations, false records of all sorts,
illegal acts of trustees, guardians, administrators,
and attorneys.
Human Error
Errors in copying, indexing,
recording; errors by administrators, executors,
trustees, guardians and attorneys; destruction of
records.
Improper Deeds and Wills
Deeds by persons of unsound mind,
minors; deeds delivered after death or without the
grantor's consent; invalid, suppressed, erroneous
wills, missing heirs, unsettled estates.
Liens and Other Rights
Liens for unpaid estate,
inheritance, income, property and gift taxes;
homestead rights, community property rights;
irregular court proceedings, court opinion
reversals, lack of court jurisdiction; defective
foreclosures.
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Owner's
policies and lender's policies
A lender will often require a title
policy for their protection alone. Such a policy
does not protect the owner. To protect themselves
against possible title defects an owner should
purchase an owner's title insurance policy on the
property.
Why
buy Title Insurance?
When a person buys a car or consumer
goods, they seldom need to know whether the former
owner is married, single or divorced; whether they
have paid their taxes or are involved in a lawsuit.
But when a person buys a home it is necessary to
have all that information and much more. For while
he may own the property, others may also have rights
in that same real estate.
A competent investigation can
uncover such items as unpaid taxes, easements,
restrictions and more. However, all items affecting
the title are not contained in a single book, in a
single office or even in the same city. Then, add to
this, the possibility of human error at a
multiplicity of points. Yet what is not in the
public records often causes title problems. For
all these reasons and many more, a property owner
needs the protection afforded by title insurance.
Will
I get a clear title?
It is of the greatest importance
that you do. But this means that you must be
informed about any of these claims against the
property so that you can make certain they are
cleared up before you buy. And it means that you
must be protected against any undiscovered claims
that may arise in the future to threaten your title
and the possession of your property. Title insurance
provides this two-fold protection.
What
if there's a defect that's hidden from public
record?
This can happen. Title insurance
companies call them "hidden risks" - the
undiscovered claims which may arise long after you
have purchased your home. While the goal of every
title insurance company is to conduct such a
thorough search and evaluation of public records
that no claim will ever arise, protection against
loss from claims on real estate which cannot be
discovered by examination of the public records is
the second part of the twofold protection that title
insurance provides.
These hidden risks might be forgery,
confusion due to similar names, or an error in the
records.
If a claim is made against your title as the
insured, your title insurance company will protect
you by defending your title, in court, if necessary;
and your title insurance company will bear the cost
of settling the claim, if it proves valid, in order
to perfect your title and keep you in possession of
your property.
What
should I be on the lookout for in reviewing the
title commitment?
Again,
a title commitment is prepared prior to closing so
that any potential “clouds” such as a break in
the chain (or who owned the property) or any
judgments that have or may in the future attach to
the property can be identified. This is done
in order to take the necessary actions to correct a
“cloud” on the title prior to closing. In
doing the search the title company will also look
for any easements (utility, driveways, joint wells,
etc) and restrictions that are part of the property. Finally,
a title commitment will be issued by the title
company prior to closing. It's a good idea to check
the title commitment over in the following ways:
1.
On Schedule A, make sure all names are
spelled correctly and that the correct parties are
shown, as well as that the correct sales price is
shown.
2.
Schedule B-1 shows anything that has to be
completed prior to closing. It will state that
a deed needs to be prepared and recorded between the
parties, any mortgage that must be satisfied at
closing as well as judgments that must be satisfied
at or before closing. Sometimes one or more of
the parties involved will need to sign a Judgment
Affidavit – this is just to cover any potential
"cloud" in title for any judgments that
are found for the same name. For instance, a
judgment is found for Jack Black, but in looking at
it, it does not appear to be the same Jack Black
that is buying the property. In this case we ask
that the buyer signs a judgment affidavit verifying
that the judgment found is not his.
3.
Schedule B-II will list any easements or
restrictions that may affect the land.
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