| Buyers / Sellers...
 What is title
insurance?
Why do you need title insurance?
To protect possibly the most important investment you'll ever make
- the investment in real estate.
A lender goes to great lengths to minimize the risk of lending
money for the purchase of real estate. First, credit is checked
as an indication of the borrower's ability to repay the loan.
Then, the lender seeks assurance that the quality of the title
to the property to be acquired and which will be pledged as security
for the loan is satisfactory. The lender does this by obtaining
a loan policy of title insurance.
The loan policy does not protect the borrower.
The loan policy protects the lender against loss due to unknown
title defects. It also protects the lender's interest from certain
matters which may exist, but may not be known at the time of the
sale.
But, this policy only protects the lender's interest. It does not
protect the borrower. That is why a real estate purchaser needs
an owner's policy, which can be issued at the same time as the loan
policy, usually for a nominal one-time fee.
What is the danger of loss?
If the lender has title insurance protection and the owner does
not, what possible danger of loss exists?
As an example, assume real estate was purchased for $100,000. A
down payment of $20,000 is made, and a lender holds an $80,000 mortgage
lien, or beneficial interest. The lender acquires title insurance
protecting the lender's interest up to $80,000. But the purchaser's
down payment of $20,000 is not covered.
What if some matter arises affecting the past ownership of the
property? The title insurance company would defend and protect the
interest of the lender. The purchaser, however, would have to assume
the financial burden of his or her own legal defense. If the defense
is not successful, the result could be a total loss of title.
The title insurance company pays the lender's loss and is entitled
to take an assignment of the borrower's debt. The purchaser loses
the down payment, other equity in the property that may have accumulated,
and the property. And the balance on the note is still due!
How can there be title defect if the title has been searched
and a loan policy issued?
Title insurance is issued after a careful examination of copies
of the public records. But even the most thorough search cannot
absolutely assure that no title hazards are present, despite the
knowledge and experience of professional title examiners. In addition
to matters shown by public records, other title problems may exist
that cannot be disclosed in a search.
What title insurance protects against.
Here are just a few of the most common hidden risks that can cause
loss of title or create an encumbrance on title:
False impersonation
of the true owner of the property
Forged deeds,
releases or wills
Undisclosed
or missing heirs
Instruments
executed under invalid or expired power of attorney
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
Liens for unpaid
estate, inheritance, income or gift taxes
Fraud
What protection does title insurance provide against defects
and hidden risks?
Title insurance will pay for defending against any lawsuit attacking
the title as insured, and will either clear up title problems or
pay the insured's losses. For a one-time premium, an owner's title
insurance policy remains in effect as long as the insured, or the
insured's heirs, retain an interest in the property, or have any
obligations under a warranty in any conveyance of it. Owner's title
insurance, issued simultaneously with a loan policy, is the best
title insurance value a property owner can get.
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