What is Title Insurance? Why should you get it?
There may be hidden risks connected with the title of your new property. In fact, 1 in 4 transactions have a title defect. These occur often as a result of errors made during past title transfers. Title insurance ensures that the title to your property is clear, with no known liens or encumbrances, such as unpaid property taxes, recorded liens, or street and sewer easements. If a title defect is discovered after the policy is issued, your title insurance company will seek to resolve it. No matter how far back the title issue goes, any claim would be filed against the property (and current owner), even though the claim is from the past.
There are two types of title insurance policies, Lender's and Owner's:
Lender's title insurance, also called the loan policy, protects only the lender's interest in the property and only for the life of the loan. Every lender will require that a title insurance loan policy be issued for the purchaser's loan. Once the loan is paid off, the coverage provided under the policy expires. Hence, a Loan Policy affords no protection for the homeowner.
Owner's title insurance protects the purchaser's interest in the property and that coverage continues for their lifetime. Owner's coverage is important because liability for title defects can survive beyond the ownership interest of the purchaser. Even if a claim against the insured property is not valid, the protection of owner's title insurance remains important because the policy provides for defense of such claim.
What kinds of problems do title professionals look for? They research the complete history of a property by scouring through public records and their own title plants to ensure there are no hidden problems. If they find an issue, they take care of it-typically without you even knowing about it. Or, if the problem is not easily resolved, they will notify you before you close.
The best title examination or search cannot protect your equity and home from matters not appearing in the public records. However, the best title policy can protect you from:
Now that you know what title insurance is, the risks involved in purchasing a home and the mitigation that Title Insurance provides, you are in a better position to decide to buy owner's title insurance or not.
Besides obtaining homeowner's Title insurance, you should decide if you want a standard or enhanced policy. The following will detail the key points that differentiate these policies:
| Coverage | ALTA Standard | ALTA Extended |
|---|---|---|
| Third party claims interest in the title | X | X |
| Improperly executed document | X | X |
| Pre-policy forgery, fraud, or duress | X | X |
| Defective recording of documents | X | X |
| Non-recording of documents | X | X |
| Liens not disclosed in the policy | X | X |
| Unmarketability of title | X | X |
| Mechanic's liens claim | X | |
| Forced removal of structure because it: | X | |
| - extends onto other land or onto an easement | ||
| - violates a restrictive covenant in Schedule B | ||
| - violates an existing zoning law | ||
| Land cannot be used for single family dwelling because use violates a restriction in Schedule B or a zoning ordinance | X | |
| Unrecorded easements | X | |
| Rights under unrecorded leases | X | |
| Building permit violations | X | |
| Subdivision map act violations | X | |
| Restrictive covenant violations in: | X | |
| - Loss of title | ||
| - inability to obtain a loan or close a sale | ||
| - loss due to enforcement | ||
| Enhanced vehicular and pedestrian access | X | |
| Map not consistent with legal description | X | |
| Post policy forgery | X | |
| Post policy encroachment onto insured land | X | |
| Post policy structural damage from mineral extraction | X | |
| Post policy living trust coverage | X | |
| Post policy automatic increase in coverage to 150% | X |
NOTE: This is a summary for purposes of convenient comparison. All references to coverage are made subject to the actual language of the policy form and schedules. Deductibles and special liability limitations apply to some coverages.
