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Why do you
need title insurance?
To protect possibly the most important investment you’ll ever make - the
investment in real estate.
A lender goes to great lengths
to minimize the risk of lending money for the purchase of real estate.
First, credit is checked as an indication of the borrower’s ability to
repay the loan.
Then, the lender seeks
assurance that the quality of the title to the property to be acquired and
which will be pledged as security for the loan is satisfactory. The lender
does this by obtaining a loan policy of title insurance.
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The loan
policy does not protect the borrower.
The loan policy protects the lender against loss due to unknown title
defects. It also protects the lender’s interest from certain matters which
may exist, but may not be known at the time of the sale.
But, this policy only
protects the lender’s interest. It does not protect the borrower. That is
why a real estate purchaser needs an owner’s policy, which can be issued at
the same time as the loan policy, usually for a nominal one-time fee.
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What is the
danger of loss?
If the lender has title insurance protection and the owner does not, what
possible danger of loss exists?
As an example, assume
real estate was purchased for $100,000. A down payment of $20,000 is made,
and a lender holds an $80,000 mortgage lien, or beneficial interest. The
lender acquires title insurance protecting the lender’s interest up to
$80,000. But the purchaser’s down payment of $20,000 is not covered.
What if some matter
arises affecting the past ownership of the property? The title insurance
company would defend and protect the interest of the lender. The purchaser,
however, would have to assume the financial burden of his or her own legal
defense. If the defense is not successful, the result could be a total loss
of title.
The title insurance
company pays the lender’s loss and is entitled to take an assignment of the
borrower’s debt. The purchaser loses the down payment, other equity in the
property that may have accumulated, and the property. And the balance on
the note is still due!
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How can there
be title defect if the title has been searched and a loan policy issued?
Title insurance is issued after a careful examination of copies of the
public records. But even the most thorough search cannot absolutely assure
that no title hazards are present, despite the knowledge and experience of
professional title examiners. In addition to matters shown by public
records, other title problems may exist that cannot be disclosed in a
search.
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What title
insurance protects against.
Here are just a few of the most common hidden risks that can cause loss of
title or create an encumbrance on title:
 False impersonation of the true
owner of the property
Forged deeds, releases or wills
Undisclosed or missing heirs
Instruments executed under invalid
or expired power of attorney
Mistakes in recording legal
documents
Misinterpretations of wills
Deeds by persons of unsound mind
Deeds by minors
Deeds by persons supposedly single,
but in fact married
Liens for unpaid estate,
inheritance, income or gift taxes
Fraud
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What
protection does title insurance provide against defects and hidden risks?
Title insurance will pay for defending against any lawsuit attacking the
title as insured, and will either clear up title problems or pay the
insured’s losses. 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. Owner’s title insurance, issued simultaneously with a
loan policy, is the best title insurance value a property owner can get.
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