Title Insurance: The Rundown

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Title insurance protects property owners and lenders against financial loss or damage due to defects or issues with the title of a property. It is a one-time premium paid during the property purchase or mortgage closing. The specific coverage and cost may vary depending on the insurance provider and the property’s value.

Title insurance provides coverage for various risks associated with the title of a property, such as:

1. Errors or omissions in public records
2. Unknown liens or encumbrances
3. Forgeries or fraud
4. Invalid or improperly executed documents
5. Undiscovered easements or rights of way

In this post, we’ll go over everything you need to know about title insurance including what it is, how it works, and why you need it.

What is a Title to Real Property?

A title is a document that proves you own a piece of property. It includes your name and other important information about the property, such as a legal description and any restrictions or easements that apply to it.

A title to real property can be either fee simple or leasehold. Fee simple means you own the property outright and have full rights to do whatever you want with it. Leasehold means you’re leasing the property from someone else for a specific period of time.

What is a Legal Description?

A long time ago, when the US was still in its infancy, land surveyors would identify the boundaries of a piece of land by landmarks such as large boulders, rivers, and trees. This is known as metes and bounds legal description.

As you can imagine, this system would lead to issues if a tree was cut down or a river changed course over time. Also, it was easy for two surveyors to come up with slightly different property descriptions for the same piece of land.

To fix these issues, the government came up with a new system known as the rectangular survey system. With this system, each state is divided into a grid of square townships. These townships are then divided into smaller sections. This makes it much easier to identify a piece of land and avoid disputes.

Common Problems with Real Estate Titles

Even with this new system, there are still title problems that can arise. Here are some common issues that arise in title records:

Errors or omissions in public records:

Title insurance can protect against mistakes or inaccuracies in public records, such as incorrect information about the property’s boundaries, ownership, or legal descriptions.

Unknown liens or encumbrances:

If there are any undisclosed liens, mortgages, or other financial claims against the property, title insurance can help cover the costs to resolve these issues.

Forgeries or fraud:

Title insurance can provide protection if someone has forged a signature on a property document or engaged in fraudulent activities related to the property’s title.

Invalid or improperly executed documents:

If any of the legal documents related to the property’s title are deemed invalid or improperly executed, title insurance can help address the resulting issues.

Undiscovered easements or rights of way:

Title insurance can protect against situations where an easement or right of way that was not previously disclosed restricts your use of the property.

These issues pose a risk to you as the buyer because you could lose your home or land if the title is invalid. This is why getting title insurance when you purchase a property is so important.

How Defects in Title Can Lead to You Losing Your Property

Defects in the title can lead to you losing your property in several ways. The most common way is through a legal action known as ejectment.

Ejectment is a legal action brought by someone who claims to have a better right to the property than the person in possession. If the court favors the plaintiff, you will be ordered to vacate the property.

Another way that you could lose your property is if someone files a lawsuit against you claiming that they have an interest in the property. This could be due to an undisclosed lien or mortgage, boundary dispute, or easement issue. If the court rules in favor of the plaintiff, then you could lose your home or land.

For example, let’s say you bought the property without a proper title search conducted. Then, you wanted to sell the property and the new buyer has a title search done. This search discovers that there was a deed issued before you bought the property and it conveys the title to another person.

In this case, you would have to give the property back to the rightful owner and you would not be able to sell it to the new buyer. You would also not be able to get your money back from the sale because you were not the rightful owner of the property.

This is just one example of how a title defect can lead to you losing your property. As you can see, it’s very important to have title insurance in place so that you are protected in case there are any problems with the title.

What is Title Insurance?

Title insurance came about in the late 19th century in America as a way to protect against losses due to defects in titles to real property. A title defect could be anything from an undisclosed lien or mortgage, to errors in public records, to forgery.

Back then (and even now), conducting a thorough search of public records was time-consuming and expensive. And, even if you did find a defect, fixing it could be costly and time-consuming. Title insurance protects you from these risks by indemnifying you against any loss that might occur due to a defect in the title.

How Does Title Insurance Work?

When you purchase a property, your title company will search public records to ensure there are no defects in the title. If they find any problems, they will work to fix them before you close on the property.

Once the title is clean, you will be issued a policy. This policy will protect you from any losses that might occur due to a defect in the title. If there is ever an issue with the title, you can make a claim on your policy and the title company will reimburse you for any losses.

What Does Title Insurance Cover?

Title insurance policies typically cover the most common title defects as mentioned above. The amount of coverage you have will depend on the policy you purchase. You can purchase a policy that covers the full value of your property or you can purchase a policy with limited coverage.

This is why it’s so important to thoroughly search public records before you purchase a property. You want to ensure that there are no problems with the title so that you can be fully protected.

How Much Does Title Insurance Cost?

The cost of title insurance depends on the value of your property and the type of policy you purchase. For a standard policy, you can expect to pay between 0.5% and 1% of the value of your property. So, for a $100,000 property, you would pay between $500 and $1,000 for the policy.

You can also purchase an extended policy which will provide additional coverage. These policies typically cost between 1% and 2% of the value of your property. So, for a $100,000 property, you would pay between $1,000 and $2,000 for the policy.

As you can see, the cost of title insurance is relatively low compared to the protection it provides. This is why it’s so important to have a policy in place when you purchase a property.

When Should You Purchase Title Insurance?

You should purchase title insurance when you purchase a property. This will protect you from any losses that might occur due to a defect in the title. Without title insurance, you could lose your property if there are any problems with the title.

During the purchasing process, your agent may tell you that your offer is subject to a title contingency. If an issue with the title is discovered, you have the right to walk away from the purchase.

Title Insurance is a Must Have

Title insurance is a must-have when you purchase a property. It protects you from losses due to defects in the title and it’s relatively inexpensive. Make sure you purchase a policy when you buy your next property.

If you have more questions, be sure to speak with a knowledgeable real estate agent or a title insurance company. They can help you understand the process and make sure you are fully protected.

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