WHAT IS TITLE INSURANCE?
Title Insurance is a Contract of Indemnity, meaning a promise by the title insurance company to pay the insured
or take other action if the insured has a loss resulting from a covered risk. This insurance under the contract
is limited by the exclusions, exceptions, and conditions listed in the policy. The title insurance company insures
against actual loss resulting from any title covered by the policy, up to the policy amount, and any attorney's fees
and expenses the title insurance company has to pay under the policy.
Basically, it protects the insured from covered losses as a result of claims on one's ownership of land. For instance,
a seller may forge a signature of another, creating a loss for a new owner. Other problems that can occur include:
- Improper court proceedings
- Recording mistakes
- Missing heirs
- Unfiled liens
- Incompetency of previous seller
WHAT TYPES OF POLICIES ARE AVAILABLE?
For the average property owner, there are two different types of title insurance policies:
- Owner Policy of Title Insurance - Indemnifies against loss resulting from title risk covered by the policy.
- Mortgage Policy of Title Insurance - Indemnifies lenders against loss or damage suffered by reason of the
invalidity of, or impairment of, the insured lien.
HOW DOES TITLE INSURANCE DIFFER FROM OTHER TYPES OF INSURANCE?
Title Insurance protects the insured from loss that may occur from the matters or defects in the past. Other types of
insurance, such as auto, fire, life, and health, cover the insured against losses that may occur in the future. Title
insurance does not protect the insured against a defect that may originate at a later date.
AFTER I RETAIN AN ATTORNEY, CAN'T I BE ASSURED THAT MY TITLE IS GOOD?
Every attorney knows that there are hazards in real estate titles which cannot possibly be discovered with even the most
diligent search of the public records. For instance, the attorney cannot be sure that the marital rights of all previous
owners have been properly relinquished: that all judgments and liens have been properly indexed in the record room; that all
signatures on all documents are genuine; that no unknown heir of a former owner can appear to assert a claim. Other
matters that can defeat real estate titles are fraud, duress, infancy, insanity, false impersonations, forged releases,
indexing errors, unpaid inheritance taxes, deeds from defunct corporations, and unprobated wills.
An attorney is not liable if you should suffer loss because of any of the 'hidden defects' in a real estate title. Liability
extends only to losses caused by oversights or carelessness in the attorney's work. Then, too, liability is limited by the
attorney's ability to pay, as well as his or her life span.
HOW DOES TITLE INSURANCE HELP PROTECT THE SAFETY OF MY INVESTMENT AND THE SECURITY OF MY HOME?
The policy places the assets of a corporation behind the title to your home. Title insurance cannot eliminate title defects
any more than fire insurance can eliminate fire. If your title is attacked, then (1) Your title will be defended with the
best possible legal defense without cost to you, and (2) Should your title be defective, you will be reimbursed, up to the
face amount of your policy, for any financial loss incurred.
IF THE PERSON I AM BUYING FROM HAS TITLE INSURANCE, WHY DO I ALSO NEED IT?
The previous owner could, in a very short time, do all sorts of things to encumber the title. He or she could grant
easements or construct improvements and encroach on adjacent property. The deed into the new purchaser could be defective
because of forgery or incompetence or any number of other circumstances. In addition, if a title defect arises ante-dating
the date of acquisition of the property by the grantor to you, you would have to take action against the grantor under the
terms of the deed to you. In that case, as an insured, the title insurance company would represent the defendant in your
HOW DOES TITLE INSURANCE PROTECT BOTH ME AND MY HEIRS AND DEVISEES?
A title insurance policy provides coverage from the time of its effective date back to the origin of title. After a
property has passed to your heirs or devisees, if any defect antedating the policy should crop up, the title insurance
company would defend the title for your heirs and devisees just as it would for you if you were alive.
Or, if the property were sold under a General Warranty Deed and the purchaser faced a claim arising within the effective
term of the policy, the purchaser's action for recovery from you or your heirs would be taken over by the title insurance
company according to the terms of the policy issued.
ARE ALL TITLES INSURABLE?
No, indeed, underwriters must turn down some applications. Just as a life insurance company will not insure a seriously
sick person, underwriters will not insure an incurable title.
This is one of the greatest values of title insurance service. If the title is uninsurable, then it is usually in such a
'sick' state that no prudent purchaser would want it. If the contract specifies that a sale is contingent upon good title
being passed on to the purchaser, the buyer is not obligated to purchase property with an non-merchantable title.