Understanding Title & Title Insurance
“Title” refers to the ownership rights to a piece of property. When buying real estate, that buyer should obtain a title insurance policy, which protects property owners and their lenders against losses related to the property’s title or ownership. In order to provide title insurance, title officers search public records to find and isolate title risks and because public records are generally indexed by name, finding pertinent information can be tedious. Some of the public records that can be searched include judgments, deeds, encumbrances, mortgages or federal and state records. From this search, potential risks can be identified which might include prior defective deeds, unreleased mortgages, mechanics’ liens, tax judgments, child support liens, access rights, easements, probate issues and more.
All in all, title insurance minimizes the risk of acquiring property whose legal history is unknown to the buyer. What is fascinating is that title defects are found in more than one out of three residential transactions. These defects are addressed by the title officer and many buyers are unaware this work is being done behind the scenes to protect their interest in the property when purchased.
Title insurance is issued for a one-time fee, called a premium, usually at the time of closing a transaction and is based on the price of the property. Title insurance coverage lasts as long as the insured or their heirs hold title to the property.
So what are the most common title problems? Let’s take a look.
- Errors in public records – Human errors are inevitable and there is a chance that at some point in the title process errors were made, but when those errors affect ownership rights, they can be devastating. Clerical or filing errors could affect the deed of your property and cause undue financial strain to resolve them.
- Unknown Liens – Prior owners of your property may not have kept up on paying bills. Even though the former debt is not yours, banks can place liens on your property for unpaid debts even after you have closed on the purchase.
- Illegal deeds – While the chain of title on your property may appear sound, it’s possible a prior deed was made by a minor, undocumented immigrant, a person of unsound mind or someone reported as single but who is actually married. These instances may affect the enforceability of prior deeds.
- Missing heirs – When a person dies, the ownership of their home generally falls to heirs or those named within their will. Those heirs are sometimes missing or unknown at the time of death. Other times, family members may contest the will for the property rights. These scenarios, which can happen long after closing escrow, may affect your rights to the property.
- Forgeries – Sometimes forged or fabricated documents that affect property ownership are filed within public records, obscuring the rightful ownership of the property. Once these forgeries come to light, your rights to the property may be in jeopardy.
- Undiscovered encumbrances – At the time of purchase, you may not know that a 3rd party holds a claim to all or part of your property, which could be the result of a former mortgage, lien, restrictions or covenants limiting the use of your property.
- Unknown easements – You may own your home and land, but an unknown easement may prohibit you from using it as you’d like or could allow other parties access to portions of the property. While not generally financial issues, easements can still affect your right to enjoy the property.
- Boundary disputes – You may have seen a survey of your property prior to purchasing, but other surveys may exist that show different boundaries. A neighbor or other party may be able to claim ownership to a portion of your property.
- Undiscovered wills – When a property owner dies with no apparent will, the state may sell their assets, including the home. Years later, it’s possible a deceased owner’s will may come to light and your rights may be jeopardized.
- False impersonation – Common and similar names can make it possible to falsely impersonate a property owner. If you purchase a home previously sold by a false owner, your legal claim to the property could be affected.
These issues are often covered by a title insurance policy. When buying a property, make sure you protect your investment in that real estate with title insurance. If you have questions about title insurance, let us put you in touch with one of our trusted title representatives.
* Information in this article was referenced from a brochure generated by First American Title Company.