When you purchase a home, the purchase price includes title to the land and any improvements to the land (i.e., the physical structures). Title to the land on which your home is located can be encumbered or restricted by rights that could affect your use and enjoyment of the property. For example, the neighboring home may have built a fence that crosses onto your land or third parties may hold an easement (a right to use your land for a specific purpose) across your land. Title insurance provides a buyer with protection against encumbrances and restrictions that will affect the buyer’s use and enjoyment of the land on which the home is located.
While other forms of insurance protect against future problems, title insurance protects against problems that have already occurred. To obtain title insurance the buyer will pay a one time premium at the time the insured property is purchased. Generally, a title insurance policy will insure the property (with certain exceptions, as discussed below) as long as the buyer owns the property. There are, however, certain events which could cause a lapse of coverage in the title insurance (i.e., transferring the property to a family member, a legal entity, or certain types of trusts). You should consult with an attorney before you transfer the insured property.
When you desire to purchase title insurance for your property, the title company that you choose will conduct a search of public records to determine if there are any restrictions or encumbrances related to the insured property. Some examples of restrictions and encumbrances that the title company will look for include:
- Deeds, wills and trusts that contain improper wording or incorrect names;
- Outstanding mortgages, judgments, or liens against the property;
- Easements that allow construction of a road or utility line;
- Mineral rights held by third parties;
- Pending legal action against the property; or
- Incorrect notary acknowledgements.
Based on the public records search, the title insurance company will provide you with a Title Insurance Commitment that will outline the proposed insurance coverage for the property. It is very important to note that the Title Insurance Commitment will often include certain “restrictions” or items that will not be insured by the title company. We recommend obtaining the assistance of a qualified attorney to review your Title Insurance Commitment and advise you of any items related to the property that will not be insured by the title company.
At the time the property is purchased, the title insurance company will issue a Title Insurance Policy that will reflect the terms and conditions of the insurance coverage. Again, it is important to note that a title insurance policy will not cover every problem related to the property.
After you purchase your home, there are many issues that could arise that the title company could not determine through the public records search. Some problems which are often undetectable include:
- A forged signature on a deed;
- An unknown heir of a previous owner claiming ownership of the property;
- Instruments executed under an expired or a fabricated power of attorney; or
- Mistakes in the public records.
Depending on the terms and conditions of your title insurance policy, the cost to remedy these problems could be the responsibility of the title insurance company. However, the cost to remedy some of these problems may be excluded from your coverage and the cost to cure the remedy will be the responsibility of the owner. Having a qualified attorney review your Title Insurance Commitment could prevent or make you aware of these exclusions from your title insurance policy.
We are not licensed attorneys and this description of title insurance is not intended to provide any legal advice. If you have any further questions, please give us a call and we can try to answer your questions or recommend a qualified attorney.