What is Title Insurance?

A title insurance policy assures that the transfer of ownership is smoothly completed, that our rights and interests in a property are as we expect them to be, and that we receive protection from future claims against the property we are purchasing. It is the most effective, most accepted and least expensive way to protect ownership rights.

Because land endures over generations, many individuals and entities may develop rights and claims to a particular property. The current owner's rights, which often involve family and heirs, may be unclear, and there may be other parties, such as public utilities, lenders or private contractors, who believe they also have rights to a property. These interests can impact and limit the "title" of any seller.

Before your real estate transaction closes, the title company performs an extensive search of all recorded property. These records are then examined by experienced title officers who are trained to determine just how any recorded document pertaining to the subject property may affect the current status of ownership. The title officer orders a Preliminary Title Report to be issued to all principals for review. This report includes information about matters such as taxes, trust deeds, easements, and other encumbrances. This thorough examination generally allows any pending title problems to be identified and cleared prior to the purchase of the property.

Protection against any future flaws and claims is also provided by the title insurance policy that is issued after your transaction is complete. Among the more common flaws may not be obvious through a search of the public records but which may surface at a later date are forgery, invalid court proceedings, mistaken legal interpretations, defective deeds, confusion due to similarity of names, previously unrecognized rights of spouses and undisclosed heirs. These problems may surface at any time in the future. Two types of policies are routinely issued: an owner's policy, which covers the home buyer for the full amount paid for the property and a lender's policy, which covers the lending institution over the life of the loan. The title policy requires only one premium for a policy to protect the owners for as long as they own the property. There are no renewal premiums or expiration date unless the property is refinanced or title is passed to another party. Title insurance fees are based on the sale price of the home. Costs among title companies can vary and it may pay to "shop" rates.

If you anticipate selling a property within 2-3 years, you can request that a binder be placed on your title policy which, for an additional fee, will significantly reduce the cost of the owner's policy when the property is sold. If you plan on selling your home within five years of its original purchase, some title companies will discount the cost of the subsequent owner's policy by 20%, (Known as a short-term rate) regardless of the title company issuing the original policy. Either of these programs could result in considerable savings, so it pays to plan ahead.

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