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What is Title Insurance?

How do you protect possibly the most important investment you’ll ever make – the investment in your home or commercial property. With a title insurance policy, you as owner, have an indemnity contract that will reimburse you for loss in the event someone asserts a claim against your property that is covered by the policy. It is of utmost importance that you receive clear title to the property when you purchase real estate. Unlike other forms of insurance, the original premium is your only cost as long as you or your heirs own the property. There are no annual payments to keep your Owner’s Title Insurance Policy in force.

Real estate is a form of wealth that is protected by many laws, which have been enacted to protect one’s ownership of real estate and the improvements located on the land. The owner, the owner’s family, and the owner’s heirs have rights or claims in and to the property that you are buying. Those who may have an interest in or lien upon the property could be governmental bodies, contractors, lenders, judgment creditors, the Internal Revenue Service, or various other individuals or corporations. The real estate may be sold to you without the knowledge of the party having a right or claim in and to the property. In addition, you may purchase the real estate without having any knowledge of these rights or claims. In either event, these rights or claims remain attached to the title to the property that you are buying until they are extinguished.

Title insurance is a unique form of insurance. It provides coverage for future claims or future losses due to title defects which are created by some past event (i.e., event prior to the acquisition of the property.)

It is extremely important that you receive clear title to the property when you purchase real estate. In order to do so, you must first be informed of any existing rights or claims that may, in the future, threaten your title and possession to the property.

In order to determine the status of title, a search of the public records if performed for those documents associated with the property. These recorded documents are analyzed in order to determine if there are any rights or claims that may have an impact upon the title to the property. The title search may reveal the existence of recorded defects, liens or encumbrances upon the title such as unpaid taxes, unsatisfied mortgages, judgments and tax liens against the current or past owners, easements, restrictions and court actions. These recorded defects, liens and encumbrances are reported to you prior to your purchase of the property. Once reported, these matters can be accepted, resolved or extinguished prior to the closing of the transaction. In addition, you are protected against any recorded defects, liens or encumbrances upon the title that are unreported to you and which are within the coverage of the particular policy issued in the transaction. This is the first benefit you receive from title insurance.

The title to the property that you have purchased could be seriously threatened or lost completely by hazards which are considered “hidden risks.” “Hidden Risks” are those matters, rights or claims that are not shown by the public records and, therefore, are not discoverable by a search and examination of those public records. Matters such as forgery, incompetency or incapacity of the parties, fraudulent impersonation, and unknown errors in the records are examples of “hidden risks” which could provide a basis for a claim after you have purchased the property.

Some of the common hidden risks that can cause a loss of title or create an encumbrance on title:

  • False impersonation of the true owner of the property
  • Forged deed, releases or wills, Instruments executed under invalid or expired power of attorney;
  • Undisclosed or missing heirs; 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
  • Fraud
  • Liens for unpaid estate, inheritance, income or gift taxes

If a claim is made against your insured title, the underwriter protects you by: (1) Defending your title, in court if necessary, at no or minimal cost to you, and (2) Bearing the cost of settling the case, if it proves valid, in order to protect your title and maintain your possession of your property.

Unlike other forms of insurance, the original premium is your only cost as long as you or your heirs own the property. There are no annual payments to keep your Owner’s Title Insurance Policy in force

Steps in the Title Process

An initial Request for Title Insurance is made with a recommended Title Insurance Provider. A preliminary report can be issued with the minimum of information; without even identifying the buyer or the terms of the sale. It shows the record title as it presently exists and is only an offer to provide insurance.

Generally, the title company will perform three searches: Property, Name, and Tax searches. From that information, a preliminary report is created.

Reinsurance – The title insurer will insure up to the total sale price or loan amount, and then employs another title insurance company to insure them. The premium paid to the re-insurance title company is deducted from the title fees; it is not an additional charge to the parties. Re-insurance is handled by the Title Department when requested by the proposed insured or is required based upon self-imposed or statutory title insurance limits.

Coinsurance -The proposed insured may only allow the title insurance company to insure up to a certain amount (i.e. not the total sale price or loan amount). The insuring company must employ another title insurance company to insure the remainder of the sale price or loan amount. When there is co-insurance, the customer is charged based upon each company’s filed rates for the portion of the total liability covered by that company. The co-insurance company may be chosen by the customer.

 

Common Ways to Hold Title

Joint Ownership With The Right Of Survivorship: (JTWROS) A common way to own real estate, two or more individuals own one piece of property together. All joint owners own the whole property (in other words, not easily partitioned). When one joint owner dies, the other owner automatically inherits the decedent’s share (survivorship). The decedent’s Will won’t control how his or her share is distributed in this case, thus avoiding probate

Tenants In Common: Two or more individuals own a share of the property. The property is easily partitioned. For example, you own 50% (the east side) and I own 50% (the west side). Upon death, the tenant in common’s share is passed through his or her Will. The advantage is that this type of property is easier to divide/partition, but doesn’t avoid probate

Tenancy By The Entirety: This is similar to Joint Ownership with Right of Survivorship above, but it reserved for legally married couples. This type of ownership offers additional creditor protection for the married couple. This method of ownership avoids probate

Payable On Death (POD)/Transfer On Death (TOD) Accounts: These types of designations are typically found on a bank account or other financial account. An individual owns the property while he or she is living and has full control over it. The POD or TOD beneficiary only has access to the account upon the owner’s death. The advantage is that it passes directly to a person, and not through the Will, thus avoiding probate

Life Estate: Used for real property, allows an individual to have a right to live in a property while he or she is living, but another person retains ownership interest. Can be advantageous for seniors, and for several situations, but you must be careful in setting up a life estate.

 

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