What is title insurance and why do you need it?

Title insurance is exactly as it sounds. It insures you in case at some later date, something is found that can affect the title on the house you purchased.

Put simply, title insurances insures the OWNERSHIP of the property, and protects you, as the owner.

There are many things that can happen which could put your property at risk. These things could have happened MANY years ago, and are not found until some years after you buy the house. Without title insurance, if something “pops up” in the future, you are not protected.

The purchase of real property often represents the largest individual financial investment you will ever make. The protection and peace of mind offered through a policy of title insurance is well worth the cost.

What sorts of things could put my property title at risk?

There are several things that could cause your title to be at risk. The most common ones include:

   Forged deeds, mortgages, satisfactions or releases.

   Deed by person who is insane or mentally incompetent.

   Deed by a minor.

   Deed from a corporation, unauthorized under corporate bylaws.

   Deed by partnership, unauthorized under partnership agreement.

   Deed given under fraud or duress.

   Deed executed under falsified power of attorney.

How can I know if there is any problem with my title?

The simple answer to this is, you can’t. And that is the very reason that title insurance is an absolute must for people buying property. In almost all cases, the likelihood of a title problem arising in the future is very small… but it CAN happen. With title insurance, you have no risk because the insurer is guaranteeing title to you. The only drawback is that the insurers liability under the title insurance contract is usually limited to what you pay for the property, not what the property is worth if a claim is made. In most cases, the policy will also cover legal fees for defending your title, unless this is specifically excluded.

How much does title insurance cost?

Premiums for the title insurance policy are usually based on the amount of risk assumed by the insurer. The liability is based on the sales price of the property, or, in the event of a lenders policy, on the amount of the loan.

Do I need two policies, or is one enough?

Nearly every sale of a residential property involves the purchase of two policies of title insurance. One policy names the buyer as the interested party and the other names the lender as the insured party.

It is customary that the seller provides and pays for a title insurance policy for the buyer. This is done so that the buyer can be absolutely assured that the property does indeed belong to the seller and that there are no liens or encumbrances against the property.

If the buyer borrows money to purchase the house, it is normally a requirement of the loan that the buyer purchase title insurance for the lender. If a lender is going to finance your purchase of a home, he will demand that your title is insured at least to the amount of the loan.

As you can see, 2 policies are normally required, however as a buyer you will only be responsible for paying for one policy.

Annual policy premiums?

The purchase of a tile insurance policy is a “one-off” event. You pay one premium, and the policy stays in force until you later sell the house. There are no recurring fees.

If it is so difficult to check title, why do insurers cover it?

Before providing a title insurance policy, the title company examines, summarizes and classifies every document affecting the property and previous owners.

Highly skilled title searches assemble this material and present the title search to a title officer.

The title officer or examiner then writes an opinion on the title. The opinion will initially take the form of a preliminary title report, and ultimately become a policy of title insurance.

So, the insurers do a lot of work prior to issuing a policy – and they know that there is unlikely to be a problem later on BEFORE a policy is ever written.

What should I look out for on a preliminary title report?

If any of the following appear on the preliminary title report, you must take immediate action. Failure to follow up on these could, and most probably will, cause a significant delay in closing of escrow.

  Mechanics Lien

A statutory lien on the property in favor of persons contributing labor, material, supplies etc to a work of improvement on a real property. A release must be recorded for this lien to be removed.

  Notice of Action

A proceeding in a court of justice where one party prosecutes another for the enforcement or protection of their rights. A release or withdrawal of the action is required to be recorded to be removed.

  Bankruptcy

A proceeding in the US bankruptcy court where assets of a debtor (unable or unwilling to pay their debt) are applied by an officer of the court in satisfaction of a creditors claim. Debtor must be discharged or dismissed from the case to be removed.

  Uninsured Deed

A deed that has been recorded but is believed not to have been checked for validity. Additional information may be needed before passing title. Call your title officer to see what might be needed.

  Access

A landowners right to have entry and exit from the property to a public street. If there is an access question, the property does not have legal access.

If ANY of the above things appear on the preliminary title report, take action immediately by firstly discussing it with your title officer and then taking whatever action he recommends.

For your own protection, do not ignore title insurance!

We hope this information has been helpful to you. If you are ready to start looking to buy a home, why not check out “Petersens Picks” which is a selection of Kent’s more interesting properties currently for sale in the Antelope Valley. If you would like to know more about the Antelope Valley, click here.  You may discover what we know - the Antelope Valley is an excellent place to live!

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