1. What is Title Insurance?
Title insurance differs significantly
from other forms of insurance. While the function of most other
forms of insurance is risk assumption through the pooling of risks
for losses arising out of unforeseen future events (such as death
or accidents), the primary purpose of title insurance is to eliminate
risks and prevent losses caused by defects in title arising out
of events that have happened in the past. To achieve this goal,
title insurers perform an extensive search of the public records
to determine whether there are any adverse claims to the subject
of real estate. Those claims are either eliminated prior to the
issuance of a title policy or their existence is excepted from
coverage. Your title insurance policy provides both peace of mind
and wonderful financial protection for your own home or for commercial
property investments.
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2. What is a title?
A title is the foundation of property
ownership. It is the owner's right to possess and use the property.
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3. Why is transferring the title
to real estate different from transferring the title to other
items, such as a car?
Because land is permanent and can
have many owners over the years, various rights in land (such
as mineral, air or utility rights) may have been acquired by others
by the time you come into possession of it, even if the land has
never before been built upon. So in order to transfer a clear
title to a piece of land, it is first necessary to determine whether
any rights are outstanding.
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4. What is a title search?
A title search is a detailed examination
of the historical records concerning a property. These records
include deeds, court records, property and name indexes, and many
other documents. The purpose of the search is to verify the seller's
right to transfer ownership, and to discover any claims, defects
and other rights or burdens on the property.
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5. What kinds of problems can
a title search reveal?
A title search can show a number
of title defects and liens, as well as other encumbrances and
restrictions. Among these are unpaid taxes, unsatisfied mortgages,
judgments against the seller and restrictions limiting the use
of the land.
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6. Are there any problems that
a title search cannot reveal?
Yes. There are some "hidden hazards"
that even the most diligent title search may never reveal. For
instance, the previous owner could 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've purchased your home and can jeopardize your right
to ownership.
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7. How much could I lose if
a claim is filed against my property?
That depends on the claim. In an
extreme case, you could lose your entire home and property - and
still be liable to pay off the balance of your mortgage. Most
claims aren't that dramatic, but even the smallest claim can cost
you time, money and aggravation, and you may have to pay costs
for a legal defense.
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8. How does title insurance
protect my investment if a claim should arise?
If a claim is made against your
property, title insurance will, in accordance with the terms of
your policy, assure you of a legal defense - and pay all court
costs and related fees. Also, if the claim proves valid, you will
be reimbursed for your actual loss up to the face amount of the
policy.
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9. The owner of the property
has a deed. Isn't that proof of ownership?
Not necessarily. A deed is just
a document by which the right of ownership in land is transferred,
whatever that right may be. It's not proof of ownership, and it
doesn't do away with rights others may have in the property. In
addition, a deed won't show you liens or claims that may be outstanding
against the title.
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10. Wouldn't an abstract show
property limitations and restrictions?
Maybe - and maybe not. An abstract
is a history of the property title as revealed by the public records.
Abstracts may contain errors and do not disclose "hidden hazards"
that can threaten your property title if you do not have a title
insurance policy.
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11. What about an attorney's
opinion?
An attorney's opinion is based
on a search of the public records. So, once again, even the most
exhaustive search of these records may not reveal everything.
Unlike a title insurance company, an attorney is not liable if
you should suffer loss because of "hidden hazards" in the title.
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12. The owner of the property
I want to purchase has lived in the home for only six months.
He had a title search done six months ago. Why do I need another
one?
Because the owner could, in a very
short time, do many things to encumber the title. For example,
he could grant easements or construct improvements that encroach
on adjacent property. It is necessary to conduct an up-to-date
title search to uncover any such problems.
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13. If the builder of my home
already has title insurance on the property, why do I need it
again when I purchase the land from him?
A title policy insuring the builder
does not protect you. Also, a great many things could have happened
to the land since the builder's policy was issued. Liens, judgments
and unpaid taxes for which prior owners were responsible may be
disclosed after you purchase the property - causing you aggravation
and costing you money.
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14. Are there different types
of title insurance policies?
Yes. Basically there are two different
types of policies - a loan policy and an owner's policy. The loan
policy protects the lender's interest in the property as security
for the outstanding balance under the buyer's investment or equity
in the property up to the face amount of the policy. (Title insurers
in many states offer increased policy coverage through inflation
endorsements to cover increases in value due to inflation.)
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15. How much does title insurance
cost?
Probably a lot less than you think.
Charges vary in different sections of the country, but generally
the cost of title insurance (including search, examination and
related services) amounts to about one percent or less of the
cost of the property. And unlike other insurance premiums, which
must be paid annually, a title insurance premium is paid one time
only, usually at settlement.
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16. How long does my coverage
last?
For as long as you or your heirs
retain an interest in the property and, in some cases, even beyond.
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17. Where can I get title insurance?
From any licensed title insurance
company or its representatives 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 broker or attorney can
recommend such a company.
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