How Title Insurance Protects Your Ownership

Why does Your Real Estate Need to be Insured by a Title Insurance Company?

You probably have several forms of insurance already. And you undoubtedly are familiar with insurance coverage on cars, your life and medical bills. But title insurance?

When you buy a condominium, a home, any other type of building or even vacant land, you must have a complete investigation made on every aspect of the property. Or, you may discover that the property you bought and paid for is not actually yours at all!

And even after the investigation, you will need protection in the event that some point has been missed in the public records or someone makes a claim on the title to your property. That protection is a title insurance policy from a title insurance company.

What does it mean to insure your title to real estate? And what are the risks that make title insurance so necessary? The following will answer those questions for you.

What are the Risks That Call for Such Protection

Real Estate has such great value and is so basic a form of wealth that many special laws have been enacted for its protection – laws so strict and far reaching that real estate is more strongly safeguarded than any other form of property.

As a result, the owner of land has exceedingly strong rights…and so do the family and heirs of the owner.

But others may have “rights” in the property, as well. There are mortgages and leaseholder rights…liens due to unpaid taxes…lien claims to those whom the owner owes money…mining, oil or air rights…and many others. Anyone who has such a claim is, in a limited way, a part owner.  He or she cannot ordinarily be deprived of their interest except having the claim settled or released. The property may be sold – even without their knowledge –but the claim is good until satisfied. As a new owner you may know nothing about these risks, but you are still vulnerable to such claims on your property. That’s why you need an insurance policy.

Doesn’t Your Deed Take Care Of Giving You Clear Title?

Not at all. A “deed” is merely an instrument whereby a seller transfers his or her right of ownership, whatever it may be, to you. It is not proof that the person described as the seller is actually the owner. It does not do away with claims or rights others may have in the property. From the deed, you cannot determine what rights, liens or claims may be outstanding against your title. The following questions must be answered before your title can be secured by an insurance policy.

Is the Record of Ownership of the Land Complete From the First Owner Down to Date?
You will probably buy property that has had a number of different owners over the years. The continuous record of all those transactions is called the “Chain of Title,” and like any other chain, it is no stronger than it’s weakest link. Anything wrong with the title of the previous owner may very well affect your title, too.

Are There Any Lawsuits or Claims Recorded Against The Property Itself?
If the former owner had a new sink installed and failed to pay the bill, the plumber may file a Mechanic’s Lien claim. This stands as a claim on the property for which you, as the new owner, may have to pay in order to clear your title. Similarly, there may be suits pending affecting the property or judgments rendered against the former owner, foreclosures or bankruptcy actions, or any number of claims or legal involvements, which may definitely cloud the title until they are properly settled or removed.
 

Are There Any Suits Or Judgments Filed Against The Owner of the Property?
If a person is sued and a judgment is rendered against the person, any real estate he or she owns may become security for the debt. This means that he or she cannot sell that real estate and deliver a clear title until the judgment is paid, released or otherwise satisfactorily disposed of. Further, other suits filed against the owner of real estate – even though not yet decided – may result in a cloud on the title and prevent the sale of the property.

Are All Taxes and Special Assessments Paid?

Unpaid real estate taxes are a first lien on any real property. If there has been a tax sale or forfeiture or any other objection or protest, it means that there are complications standing in the way of a clear title.

Does Anyone Have Special Rights To The Property That Would Limit Ownership?
A good many such things are possible – the right-of-way for a road or power line, an easement for a driveway, air rights, sub-surface rights and various others – any of which may have been sold or granted to someone else by a former owner. If so, there may be restrictions on your use of the land.
 

If the Seller Is A Corporation, Is it Fully In A Position To Sell The Property? 
You may buy a piece of property in good faith from a corporation, only to have the validity of the sale challenged by a stockholder who claims it was not the properly authorized by the Board of Directors – or that the company was not empowered under its charter or by-laws to sell the land at all. There are further complications possible if the company is in receivership, or if the firm is being dissolved.

What Is An Abstract? Doesn’t It Tell About The Property?

An abstract, which is used in some parts of the country, is a history of the title to property as revealed by the public records. Deeds, mortgages, other instruments and legal proceedings, which have affected property through the years, are all included in the abstract.

If something is revealed in the abstract, which might stand in the way of a clear title, it is up to the owner and the owner’s attorney to clear it away. If they cannot do this, it must be accepted as a limitation on your right of ownership. Also, it is not infrequent for matters, which seriously affect the title to be omitted in an abstract, because they are not shown in the public records.

Does An Examination Of The Abstract Reveal All Defects In The Title?

It may not…simply because the public records, from which an abstract is made, may not show everything which affects the title. For example: Statements in the record may be incorrect or may fail to give important facts. There may be fraudulent or improperly executed documents on the record. And, there may even be ordinary clerical mistakes, which could seriously endanger the title.

In fact, a title would appear to be clear, after the examination of the abstract, only:

• If the search made in preparing the abstract has been thorough;

• If the facts revealed in the abstract have been correctly interpreted;

• If no clerical errors have been made in the public records;

• If claims or rights of others have been disposed of.

Even after all these possible hazards are eliminated, there still remain some of the most serious sources of risk…hazards, which by their very nature simply cannot be uncovered.

What Are Some Of These Hidden Risks?
Some of the most serious risks, which are not revealed by the records or by an examination of the abstract but covered by a title insurance policy, are:

Marital Status of Owner Incorrectly Given
Under the law, one spouse may have an interest in property owned individually by another spouse. An owner may say that he or she is single, although secretly married or perhaps divorced in another state – resulting in a claim by a spouse or former spouse whose existence was not suspected.

Undisclosed Heirs 
When an owner dies and there is no will, the courts must decide who the rightful heirs are. But even then, such a decision by the court may not be final or binding on any heir who was not notified of the proceeding. Even under a will, the court may have to settle questions of interpretation of the will. Cases of this kind include children born after the will and heirs overlooked due to incorrect probate proceedings.

Mental Incompetence Or Minors
A transfer of property by a minor or a person adjudged to be mentally incompetent raises special problems. To be valid and binding on a minor or incompetent, the transaction must be made by guardians or appointed by the court. If a deed or release was executed by a person who was minor or under mental disability at the time, the transaction may be voidable or invalid. 

Fraud and Forgery
The owner may have been fraudulently impersonated. Deeds, releases, or other documents may be forgeries.

Defective Deeds
A deed may have been delivered without consent of the owner after his or her death. A document may have been executed under an expired power of attorney. The name of the grantee may have been inserted in the deed after its delivery. The officer of a corporation may not have been properly empowered to act. In any such case, the action may result in loss of title.

Confusion Due To Similar Identical Names
Despite a careful investigation to prevent it, some confusion of identity is possible. Fro example, a person’s title to his of her land, established thirty years ago, may be under the name of Jonassen and the taxes may still be paid under that name – but the lawsuits, marriages, divorces, wills and other actions may be under a simplified family name, such as Johnson, Johnston, Jonson, or even Jansen. Or two members of the same family might have the same name, as in the case of father and son – and the title may be in one while the deed is executed by the other having no title.

Errors In Records Or Clerical Work
A document may be missed in searching. Entries or indexing in records may be in error. Clerical mistakes are infrequent, but they do happen.

Is There Any Way To Be Protected Against These Risks?
Yes, with a title insurance policy. Under the terms of a title insurance policy, you are protected against the risks and insured against loss. If your title as insured is ever attacked, the title insurance policy stands ready to defend it in two ways:

1)      If it is necessary to enter a legal defense of your rights under the policy in any suits or proceedings adversely affecting the title as insured, the title company employs legal counsel to take such action for you…completely at our own expense.

2)      If a loss is sustained, you are protected up to the full amount of your policy, which usually is equal to the full purchase price you paid for the property.

My Lender Has A Mortgage Title Insurance Policy On My Property, Why Isn’t That Enough?
Any person or financial institution that lends money or real estate wants that investment protected. A title insurance company provides mortgage title insurance policies to assure the lender that the mortgage is a valid first lien protected against hidden as well as known defects in the title as insured. Such a policy afford the only way a lender can be certain about the title which may be acquired in the event of a foreclosure.

Unfortunately, this does not benefit the owner in the event of a claim, for a mortgage title insurance policy protects only the lender’s interest in the property, not the current owner. That is why a title insurance company provides owners title insurance policies to protect the owner’s interest in a piece of property. Purchasing your owners title insurance policy a the same time that the lenders orders the mortgage title insurance policy can result in cost savings to you.

Is Title Insurance Expensive?
The cost of title insurance on any piece of property you may decide to buy is very small when compared with the benefit and security it gives. And, unlike other forms of insurance, there are no annual payments to keep the policy in force – you pay only one premium. The original premium is your only cost as long as you or your heirs own the property!

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.