1. What is title insurance?
2. Why do I need title insurance?
3. What is a title search?
4. What issues can a title search reveal?
5. Are there any issues a title search may not reveal?
6. What is a HUD-1 Settlement Statement?
7. What does title insurance cost?
8. If I have a problem, will I lose my property to make a claim?
9. If my lender obtains title insurance, why do I need it?
10. What types of risks are covered by title insurance?
11. What is a Standard Owner's Policy?
12. What is an Expanded Owner Policy?
1. What is title insurance?
It is an insurance policy that protects the insured against loss should the condition of title to the land be other than as insured. Unlike other types of insurance that offer protection against future possible occurrences, title insurance offers protection against past occurrences which could result in a claim at a future date. Coverage continues in effect for so long as you have an interest in the covered property. If you should die, the coverage automatically continues for the benefit of your heirs. If you sell your property, giving warranties of title to your buyer, your coverage continues. Likewise, if a buyer gives you a mortgage to finance a purchase of covered property from you, your coverage continues to protect your security interest in the property. Title insurance provides the insured with "peace of mind" in knowing that you are receiving good and meritable title to the real estate you are purchasing.
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2. Why do I need title insurance?
When you buy a home--or any property for that matter--you expect to enjoy certain benefits from ownership...to be able to occupy and use the property as you wish, to be free from debts or obligations not created or agreed to by you, and to be able to freely sell or pledge your property as security for a loan. Title insurance is designed to cover these rights. Without an owner's title insurance policy, you may not be fully protected against errors in the public records, hidden defects not disclosed by the public records, or mistakes made during the examination of the title of your new property. As a result, you may be held fully accountable for any liens, judgments or claims brought against your new property. However, your owner's title policy insures that if such an occasion arises, you will be defended, free of charge against all covered claims and paid up to the amount of the policy to settle valid claims.
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3. What is a title search?
A title search is a thorough review or examination of the public records that pertain to real property ownership and the rights/limitations of its use. The search period begins with the current owner(s) and extends back in time for a period of 60 years (commonly referred to as the "chain of title"). All documents affecting the subject property are reviewed for accuracy, completeness and proper execution. Similarly, all owners of record during the search period are indexed to determine their ownership interests, marital status and legal and mental capacity to enter into a contract to sell/buy real property. All conveyances must have been properly conducted and approved by the appropriate governmental departments.
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4. What issues can a title search reveal?
A title search can show any number of title defects, liens, and other encumbrances and restrictions. Among these are unpaid taxes, unsatisfied mortgages, judgments against buyers/sellers and any restrictions or conditions limiting the use of the land.
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5. Are there any issues a title search may not reveal?
Yes. There are some "hidden hazards" that even the most diligent title search may not reveal. For instance, a previous owner could have incorrectly stated his marital status resulting in a possible claim by his legal spouse. Other hidden hazards include fraud, forgery, defective deeds, mental incompetence, confusion due to similar or identical names, and clerical errors in the City/County land records. These defects can arise after you've purchased your home and can jeopardize your right to ownership in part or full.
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6. What is a HUD-1 Settlement Statement?
This is a summary of the financial portion of the real estate transaction. The title company or closing agent is required by the Department of Housing & Urban Development to use the HUD-1 on virtually all one-family to four-family residential real estate transactions involving a lender. The statement will list the purchase price, loan amount, closing costs for the buyer and seller, and will show all sums being charged and disbursed to the parties involved. It also clearly summarizes the total amount due from the purchaser.
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7. What does title insurance cost?
The cost varies, depending mainly on the value of your property. The important thing to remember is that you only pay once, then the coverage continues in effect for so long as you have an interest in covered property. If you should die, the coverage automatically continues for the benefit of your heirs. If you sell your property, giving warranties of title to your buyer, your coverage continues. Likewise, if a buyer gives you a mortgage to finance a purchase of covered property from you, your coverage continues to protect your security interest in the property.
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8. If I have a problem, will I lose my property to make a claim?
Not at all. At the mere hint of a claim adverse to your title, you should contact your title insurer or the agent who issued your policy. Title insurance includes coverage for legal expenses that may be necessary to investigate, litigate, or settle an adverse claim.
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9. If my lender obtains title insurance, why do I need it?
The lender's policy covers only the amount of its loan, which is usually not the full property value. In the event of an adverse claim, the lender would ordinarily not be concerned unless its loan became non-performing and the claim threatened the lender's ability to foreclose and recover its principal and interest. And in the event of a claim, there is no provision for payment of legal expenses for an uninsured party. When a loan policy is being issued, the small additional expense of an owner's policy is a bargain.
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10. What types of risks are covered by title insurance?
Standard Coverage addresses such risks as: forgery and impersonation; lack of competency, capacity, or legal authority of a party; deed not joined in by a necessary party (co-owner, heir, spouse, corporate officer, or business partner); undisclosed (but recorded) prior mortgage or lien; undisclosed (but recorded) easement or use restriction; erroneous or inadequate legal descriptions; lack of a right of access; and deed not properly recorded.
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11. What is a Standard Owner's Policy?
This policy provides the basic coverage for persons desiring to protect their interest in the property. It insures the following:
You are the true owner of the property.
There are no defects, liens or encumbrances other than those that are listed in the policy.
The title you acquired is marketable and cannot be rejected by a subsequent buyer as being impaired by some defect that existed at the time you purchased the policy.
You have a legal right of access to the property from a public street or private right of way.
The company will defend your title if it is challenged and will pay costs, attorneys' fees and expenses to defend you against any claims made against your title which fall within the coverage of the policy.
Coverage increases by 10% each year for the first five years without additional cost.
The coverage under both the Standard and Expanded Coverage policy continues in force for as long as you have an interest in the property or so long as you can be sued for having owned an interest in the property. That means that you are insured even after you sell the property if you have conveyed the title by warranty deed to the new owners. Should the subsequent owners later make a claim against you for a matter that is within the scope of coverage of your policy, the company will provide the protections listed above.
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12. What is an Expanded Owner Policy?
Subject to possible deductions and limits of coverage (see the policy or ask your attorney for information on how to remove the deductibles and limits from your policy), this policy provides all of the coverage described in the Standard owner policy above plus the following:
Use of the land for a single-family dwelling is not prohibited by zoning/recorded restrictions.
There are no pre-existing leases, contracts or options to purchase affecting your title or easements affecting your property.
No work or materials were provided to your property before acquisition for which a lien can be filed.
You cannot lose title to your property through forfeiture or reversion because of a pre-existing violation of recorded restrictions.
You cannot be forced to remove an existing structure on the property because of a violation of zoning or private restrictions or because no building permit was issued for the structure.
There are no pre-existing violations of any recorded restrictions affecting your property.
You have a legal right of access to the property by both foot and vehicle.
Other protection against loss include:
Ownership claims of others based on forgery before or after acquisition of title.
Claims to divest you of ownership because of a pre-existing violation of restriction.
Claims of others to limit the use of your property based on a recorded restriction.
Refusal to fulfill a purchase contract, lease or make a mortgage loan because of pre-purchase violation of restrictions.
Someone else builds on your property.
Inability to sell because of violations of subdivision laws.
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