Title Insurance – What is it?
Title insurance is a very unique type of insurance. It protects you against ownership claims against your property, property loss or damage you might experience because of liens, encumbrances or defects in the title to the property.
It differs to other types of insurance since the buyer pays the fee only once – at the closing, and protects the buyer and their hiers for as long as they own the property. Essentially, it is a contract between the buyer (or the lender) and a title insurer for any past defects in a chain of title. In simple words, it means that if the problems arise the insurer will defend you against it. Therefore, the title insurance protects you from the events that happened in the past such as: forgery, forgotten heir or other people who claim ownership to your property.
Who Needs The Title Insurance?
Purchasers and lenders need title insurance in order to be insured against various possible title defects. The buyer, seller and lender all benefit from issuance of title insurance.
Types of Title Insurance
a) Owner’s title insurance – insures the new owner/home buyer.
b) Mortgagee’s or lender’s title insurance – insures the priority of the lender’s security interest.
Owners Extended Coverage “OEC”
An extended policy, also referred to as an ALTA ( American Land Title Association) policy, covers you against many more risks than the basic coverage. Consequently, you get coverage against other parties or buildings encroaching on your land, unrecorded mechanic’s liens, unrecorded tax liens and other imperfections in title.
Is Title Insurance Optional?
It is mistakenly believed that a title search will discover every possible defect in a title. The title searches can only reveal documents or events of public records. Therefore, anything that does not have proper documentation or was done illegally may not be know until later in the future. It is important to remember that and consider that fact while purchasing real estate.
On the other hand, all the lenders insist on having their own policy separate from the owner’s policy – mortgagee policy. Lenders policy protects the institution for the amount of the loan and for the validity and position of their liens. Consequently, lenders do not consider title insurance optional.
Title Commitment
What Is a Title Commitment?
A title commitment is the document in which a title company discloses all the lines, defects and obligations that affect the subject property. In addition, it also lists all the requirements that must be met before title company can insure a title as marketable or before the loan can be approved.
In that case, marketable title is a title free from reasonable doubt or defect and as a result you can easily sell the property or mortgage it.
Parts of Title Commitment
The document consists of five parts:
- Distribution Page
- Fee Page
- Schedule A (Sets out the basic facts of the transaction.)
- Date
- Proposed insureds
- Types and liability amounts of the policies
- Real Estate subject to insurance
- How the title is hold
- Legal Description
- Address of the subject property
- Schedule B-1 (Necessary requirements that must be met before a title policy can be issued.)
- Schedule B-2 (Necessary exceptions to title.)
Standard Exceptions
Standard exceptions are the exceptions that a title company will not insure against:
- Rights or claims of parties in possession not shown by the public records.
- Easements, or claims of easements, not shown by the public records.
- Encroachments, overlaps, boundary line disputes.
- Any lien, or right to a lien, for services, labor, or material hereto or hereafter furnished, imposed by law and not shown by the public records.
- Taxes or special assessments which are not shown as existing liens by the public records.
If you decided to get Owner’s Extended Coverage, then the above standard exceptions will be removed from Schedule B-2.
