Title is a collective term that makes up your legal rights to own, possess, use, control and dispose of land. Title takes into account all previous ownership, uses, and transfers, In order to legally transfer real estate property, a title search must be preformed and in most cases the title must be determined as clear, or free of defects or encumbrances.
A title defect is something missing from the title, for example, an undisclosed heir from a previous owner who could claim the land. An encumbrance is a claim made upon the land, but not by the landowner. For instance, your local power company may have an easement for a power line that will serve your house. If you are borrowing money to purchase land, your lender will require your title to be cleared of any outstanding defect or encumbrance, before the land is transferred.
Why is transferring the title to real estate different from transferring the title to other items, such as a car?
Land is permanent, and the usage of land can change over years. A landowner can transfer various rights from the title such as mineral, water or utility rights. Even if the land is vacant when you buy it, it may have a history you don’t know about, so it is first necessary to search the title to determine if any defects or encumbrances are outstanding, and to clear those that you or your lender do not accept.
Title insurance is an insurance policy that protects against future loss, should the title condition be any different than when the policy was written.
There are two types of title insurance policies: a lender’s policy (also called a loan policy) and an owner’s policy. The lender’s policy financially covers the amount of a loan and provides protection to the lender. A lender’s policy does not usually represent the full property value. An owner’s policy protects the landowner and can financially cover the full property value. While a loan policy is often required as a part of a real estate transaction, an owner’s policy is generally considered optional.
With an owner’s policy, the landowner is protected against any title loss, which ensures the value of the property. Because a title policy is considered insurance, if a claim is made against the title, the title insurer must pay any and all costs associated with defense against the challenge, and if unsuccessful in that defense, reimburse the landowner for any reduction in the value of the land.
A title search is a detailed examination of the historical, public records concerning a property. These records include deeds, court records, property and name indexes, and many other public documents. The purpose of the search is to verify the seller’s right to transfer ownership, and to discover and defects or encumbrances on the title.
A title search should show all title defects and encumbrances, as well as other claims and restrictions. Among these are unpaid taxes, unsatisfied mortgages, judgments against the seller and restrictions limiting the use of the land.
Yes, There are some hidden hazards that even the most diligent title search may never reveal. For instance, the previous owner may have incorrectly stated his or her marital status, resulting in a possible claim by a legal spouse. Other hidden hazards include fraud and forgery, defective deeds, mental incompetence, confusion due to similar or identical names, and clerical errors in the records. These defects can arise after you have purchased property and can jeopardize the right to ownership.
No. A deed is just a document used to show transfer of ownership, and is evidence only that you have taken over whatever rights the seller had in the property. A deed does not eliminate the rights others may have, and a deed won’t show you liens or claims that may be outstanding against the title.
Possibly. An abstract is a history of the property title as revealed by the public records. In many cases, an abstract is considered an abbreviated title. An abstract only protects against loss related to the title examiners oversight, not hidden hazards as described above.
An opinion is the conclusion and judgment of a trained professional, often an attorney, based on a search of the public records. Just like with an abstract, a title opinion only protects against loss related to oversight on behalf of the individual making the opinion, not hidden hazards.
A title policy insuring your seller does not protect you. Also, many things could have happened to the land since that owner’s policy was issued. Your seller could have a mortgage, a home equity loan, judgments, or unpaid taxes that would not be covered in the seller’s title policy.
Absolutely. Homeowner’s insurance typically provides protection against theft, accidental damage, or natural disaster such as tornado, earthquake, or hurricane. While these types of loss can certainly be substantial, losses from a defective title could be devastating. If a fire destroys your home, you can rebuild and buy new possessions. If the title to your land fails, you could lose the right to inhabit your home as well as the land it occupies.
Title insurance probably costs a lot less than you think. Charges may vary in different sections of the country, however the important thing to remember is that you pay for an owner’s policy of title insurance only once and there are no monthly premiums.
The lender’s policy of title insurance lasts until the mortgage is paid in full. An owner’s policy of title insurance lasts for as long as you or your heirs retain an interest in the property.
A title insurance policy provides coverage from the time of its effective date back to the origin of title. After the property has passed to your heirs, if any defect prior to the policy should arise, the title insurance company would defend the title for your heirs just as it would for you if you were alive.
You can obtain title insurance from any licensed title insurance company or its agents operating in your state. When choosing a title insurer, it is important that you look for a company with expertise and experience, as well as the financial strength to protect you should a claim arise. Your real estate broker or attorney can recommend such a company.
Yes and no. While the lender will likely require a loan policy of title insurance, the purchaser can choose what type of owner’s protection, if any, to use with regard to title. It’s important to remember, however, that only title insurance protects the owner against hidden hazards, and only title insurance reimburses the owner for legal expenses for defense or claims that affect the value of the property.
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