Kim Clark, AE, GAD
What is Title Insurance?
What is Title Insurance? It is a policy that protects a buyer against errors or omissions or defects in the title of the property. This insurance protects the lender and or the homeowner, if an owner’s policy is purchased against losses resulting from problems with the title of a property, or other inconsistencies relating to the title of the property such as: liens, easements, rights-of-way, covenants and restrictions, other elements affecting title to the property. The title insurance process traces the “chain-of-title” or a history of ownership of property in public records. Title searches start with the most recent deed, searching the grantee’s name (the person now holding title) backwards in time, until the deed when the grantee acquired the property is located. Next, that grantor’s name is then searched backwards in time in the grantee’s book to find when the grantor acquired title as a grantee. This process continues, and over time, the property description involves larger and larger parcels of land. Finally, the searcher finds the U. S. Patent. Title companies generally don’t search back to the U.S. Patent however they may search the “chain-of-title” back 50 years.
Some examples of how a title to real estate can be found to be defective are: homeowners who are in bankruptcy who have no authority to sign the deed to convey property to a third party – a grandson forges his grandmother's name to a deed and conveys her property to a third party, or to himself – a deed or other legal document is improperly recorded with the wrong legal description – in a previous transaction the deed was not signed by all parties. Such as, the wife’s signature was not on the deed. Meaning the wife could still make a claim to the property. In effect, she was still in title as an owner because she hadn’t transferred her interest in the property.
Title insurance is designed to protect the lender — and the homeowner — against these risks. Unlike other types of insurance policies, however, title insurance does not cover future risks; its coverage is limited to risks or title defects that are already in existence at the time the policy is issued.
Title Insurance Coverage
Depending on the title company, consumers can choose among a variety of options, but the top three choices are Owners, Lender’s and Extended Coverage.
Basic Owner’s Title Policy Coverage:
Clear title to the property
Incorrect signatures on documents
Forgery, fraud and impersonation
Mistakes in recording legal documents such as the deed
Undisclosed or missing heirs
Lack of a right of access
Undisclosed (but recorded) prior mortgage or lien
However, there are numerous coverage exclusions contained in an owner™s policy
Basic Lender’s Title Policy Coverage:
Most lenders require a Loan Policy when they issue a loan
Mechanic’s liens and unrecorded liens
Unrecorded easements and access rights
Defects and other unrecorded documents
The lender’s policy does not protect the homeowner
The lender’s policy only protects the amount borrowed not the value of the property
When refinancing a lender will require a lender’s title insurance policy
Extended Owner’s Coverage
Building permit violations from previous owners
Deed to land with buildings encroaching on land of another
Covenant violations from previous owners
Silent (off record) liens (such as; mechanics’ or estate tax liens)
Variety of encroachments and forgeries after title insurance is issued
Who pays for Title policy insurance? This depends on your local custom. It can differ from county to county, but it is also negotiable in the purchase offer. Sometimes sellers and buyers split the fee for the owner’s policy. Typically, the seller pays for the title insurance.
How long are Title policies good for? For a one-time premium, an owner’s title insurance policy remains in effect as long as the insured, or the insured’s heirs, retain an interest in the property, or have any obligations under a warranty in any conveyance of it.
How often are Title policy insurance premiums paid? Once, is a one-time premium which is paid at the closing of escrow. The cost varies, depending mainly on the value of your property. In New Mexico Title policy rates are calculated from the rate schedule filed by the Superintendent of Insurance. Title policy insurance is the best insurance policy you can ever buy.
What if I have a problem? Do I have to lose my property to make a claim? Not at all. At the mere hint of an adverse claim to your title, contact your title insurer or the agent who issued your policy. Title insurance includes coverage for legal expenses which may be necessary to investigate, litigate or settle a claim.