Title Insurance is what you need to have the legal right to possess, occupy and sell your property without interference from others, subject only to restrictions imposed by governmental authorities or previous owners. In most cases, title is transferred by deed which is recorded in the land records of the county in which the property is located. Generally, when property is sold, an attorney for the Buyer or a title examiner goes to the record room and searches the land records for any title defects. A title defect is anything in the entire history of ownership of a piece of real estate which may encumber the owner’s rights under the title. A title defect may cause the owner of real property to lose all or part of his land to a superior ownership interest or claim of another. This is the type of loss which title insurance protects against. In short, if you own a title insurance policy, the title insurance company will defend you, without cost, against an attack or claim upon your ownership interest in your property as insured and you will be protected against financial loss caused by a title defect.
There are many defects which even the most meticulous search of the land records will not uncover: For instance, it is impossible for an examiner to know whether the marital rights of all previous owners have been relinquished; whether all deeds, mortgages and judgments affecting the property have been properly indexed in the land records; whether all signatures are valid; or whether an unknown heir of a previous owner had a valid claim against the property. Without owner’s title insurance you may have no avenue of recovery for these types of problems.
In almost every instance, a lender will require you to purchase lender’s title insurance protecting it up to the value of its loan on the property. This coverage only protects the lender, not you, and the coverage diminishes as the loan is paid off. As you build more equity in the property, you expose yourself to a higher risk of loss occasioned by a title defect. In this situation the protected lender will suffer no loss while you as the owner of record bear the substantial risk of the damage. Owners’s title insurance will protect you against any covered loss from failure of title up to the full amount of the policy.
Owner’s Title Insurance will protect you against hidden risks which would not be disclosed by even the most meticulous search of the public records. Some examples of hidden risks are:
- Forgery – Inadequate surveys
- Fraud in connection with execution of documents – Incorrect legal descriptions
- Undue influence on a grantor or executor – Non-delivery of deeds
- False impersonation by those purporting to be owners of property – Unsatisfied claims not shown on record
- Incorrect representation of the marital status of grantors – Deeds executed under expired or false powers of attorney
- Undisclosed or missing heirs – Confusion due to similar or identical names
- Wills not properly probated – Dower or curtsey rights of ex-spouses of former owners
- Mistaken interpretation of wills and trusts – Incorrect indexing
- Mental incompetence of grantors – Clerical errors in recording legal documents
- Conveyance by a minor – Delivery of deeds after death of grantor
- Birth of heirs subsequent to date of will
There are three different types of Title Insurance. A Lender’s Policy, Standard Owner’s Policy and the Owner’s Enhanced Policy. Lender’s Coverage is required by all corporate lenders as a condition of the purchaser’s loan. This covers only the lender for the amount of the loan they are making to a borrower. The Lender’s Policy that the lender is provided with is the standard ALTA 1992 Loan Policy. It provides coverage to the Lender against such title encumbrances as fraud in connection with the execution of document, incorrect representation of the marital status of grantors, wills not properly probated, and many other circumstances that might jeopardize the Lender’s security in the property.
The Standard ALTA 1992 Owner’s Policy protects you as the owner of real property against fraudulently executed documents, incorrect representations and improperly probated wills as well as any unsatisfied claims that may not appear in the County land records.
The Owner’s Enhanced Policy covers you, the owner against all that is included in a standard ALTA 1992 policy but with additional and enhanced coverage. Subject to limitations, some of the benefits of an Enhanced Policy include:
- Mechanic’s lien coverage is provided for work done prior to the date of your policy.
- Zoning coverage is now provided, insuring that your land is properly zoned for a single-family residence.
- Subdivision coverage is now provided in the event your land is a portion of an improperly created subdivision.
- Coverage is provided if you as the owner are forced to remove an existing structure, other than a boundary wall or fence, due to a previous owner’s failure to obtain the necessary building permit.
- Coverage is provided if an adjacent builder builds onto the homeowner’s property without permission.
- Coverage is provided for forgeries affecting your ownership after the date that your title insurance policy is issued.