Ins and outs of title insurance
another kind of insurance you buy when you buy a house or refinance: title insurance.
It's an unusual kind of policy because it protects against something that might
have happened in the past, rather than something that might happen in the future.
defects aren't common, but when they occur, the consequences can be disastrous.
protects the lender or owner from disputes over ownership of property. When you
buy real estate, someone checks land ownership records to find out if the seller
has the right to sell it and collect the full payment.
the seller is divorced and needs the ex-spouse to sign a document allowing the
sale to go through. Or maybe an unpaid electrician put a mechanic's lien on the
property, ensuring payment when the property is sold. The county might have filed
a lien to satisfy unpaid taxes. And, of course, the mortgage lender has a lien
on the property, ensuring that the loan is repaid before the sales proceeds go
to anyone else.
One seller found out to his surprise
that there was a "cloud" (title defect) affecting title to his property.
The title search on his property showed that a deed had been recorded transferring
title from the previous owner to himself. But that deed was signed by only one
of the two owners.
Due to an oversight, the wife's
signature wasn't on the deed. This meant that the wife could still make a claim
to the property. In effect, she was still in title as an owner because she hadn't
transferred her interest in the property.
A good title
Your real estate purchase contract should include a clause
that requires the sellers to provide you with good or marketable title to the
property at closing. If the sellers are unable to do this, you should be able
to withdraw from the contract without penalty.
the example above, the buyer's title insurance company was able to track down
the wife's heirs and get the signatures necessary to remove the cloud on the title.
The defect in the title report was corrected and the sale went through.
Most buyers take out a mortgage when they purchase a home. But
before a lender will issue a mortgage, there will need to be evidence that the
buyers will receive good title to the property. Also, the lender will require
that a title insurance policy be purchased, usually at the buyer's expense, guaranteeing
the lender's interest in the property.
Title insurance is paid
for on a one-time-only basis. It is not transferable from one party to another.
A lender's policy of title insurance
won't protect the buyers' interest, but buyers can get title insurance for their
own protection. Even if you're paying all cash for a property, and won't need
a mortgage, it's wise to obtain a title insurance policy to protect yourself.
Title insurance for the buyer can be paid for by either the buyer or seller. Who
pays is often determined by local custom. The cost is based on the purchase price:
the higher the price, the higher the title insurance premium.
Before issuing a policy of title insurance,
title examiners search the public records for records that affect the property
in question: such as liens, judgments and easements. An easement grants the right
to use another person's property for a specific purpose.
title search is designed to dig up all of these things and more. Later, if there
is a dispute and a lawsuit over ownership of the property because the title search
was faulty, the title insurer pays legal fees and any settlement amount. When
you pay for title insurance, you're paying for two things: the title search and
the insurance policy that pays the costs of future legal proceedings.
are two kinds of title policies when you buy a house. One covers the lender (you
have to pay) and the other covers you, the buyer. You'll always be required to
get the former, and it's often a good idea to buy the latter.
sure you understand the kind of title insurance you're buying, for there are several
kinds available. If you have a question about anything in your title search, ask
your title insurer or attorney for an explanation before you close.