Title Insurance: a Buyer’s Perspective
June 20, 2018
Law Office of Daniel M. Keil
Why do I need title insurance? The question is something real estate attorneys get all of the time. Buying a home is already an expensive process. Who wants to think about yet another thing that requires the attention of their wallet?
There are many things that go into a real estate transaction. Most notably, sellers are required to provide buyers with “marketable title.” In real estate, “title” refers to the rights of ownership and possession of a particular property. By the same token, marketable title refers to title which is free and clear of any liens or title defects which would be unacceptable to a reasonable and educated buyer*. To ensure that the seller has marketable title, a buyer can have their attorney proceed with a thorough title search to create a chain of possession for the property. A title search is an examination of public records concerning the property you intend to buy*. Such a search would uncover any title defects or liens concerning your property.
Although it is good practice to conduct a title search when considering a real estate purchase, even the most thorough title searches can miss things. This is often because not all defects are a matter of public record. Situations like these are why title insurance is important. In a case in which there is an uncovered title defect, the buyer may be required to spend thousands of dollars to repair the defect. This defect may not come up until the buyer is attempting to sell the home, and conducts another title search. Title defects can be expensive! In such a case where the buyer does not purchase title insurance prior to closing, the buyer will have to pay all of these fees and will essentially be stuck with the property until all defects are resolved. In the worst case scenario, the home owner may even lose the house. Securing title insurance means the buyer is covered in any of these scenarios.
Important: There are two types of title insurance. If you receive a loan, your lender may require you to purchase a lender’s title insurance policy. This policy does not cover you and is only meant to protect the lender. It is important to seek your own title insurance policy to ensure that you are protected as well.
Some examples of discoverable defects are mortgages, court judgments, construction liens, and real estate property taxes while examples of hidden defects include forged deeds, undisclosed heirs, clerical errors at the courthouse, and confusion resulting from similar names. Many title insurance policies will have exceptions listed which are not covered by the policy. This is usually because these matters cannot be eliminated. One such example is an easement on the property allowing a power company to bring a wire across your yard. If you object to the exception, you and the seller have a specified amount of time to come up with a resolution. If the issue cannot be resolved, you may be able to get out of the purchase contract*.
Purchasing Title Insurance
Title insurance is purchased when you close on a home. It is important to consider who you purchase your policy from carefully. This can be done through your real estate attorney. It is important to seek a real estate attorney when purchasing a home because they can do many of the things a title agent cannot such as:
– review contracts
– negotiate these contracts on your behalf
– explain the meaning of the documents you will be asked to sign during closing
– give you legal advice,
– resolve title issues.
In the end, the cost of hiring a real estate attorney and the cost of hiring a title agent are the same. Buying a home is often one of the most important purchases of your lifetime. As such it is important to have the best resources available when completing this purchase, and to make sure you are protected throughout the process. It just makes sense to obtain title insurance.
*Information courtesy of The Fund.