A Word About Real Estate
Real estate has traditionally been a family’s most valuable asset. It is a form of wealth that is protected by many laws. These laws have been enacted to protect one’s ownership of real estate and the improvements located on the land. The owner, the owner’s family, and the owner’s heirs have extremely b rights or claims in and to the property that you are buying. Those who may have an interest in or lien upon the property could be governmental bodies, contractors, lenders, judgment creditors, the Internal Revenue Service, or various other individuals or corporations. The real estate may be sold to you without the knowledge of the party having a right or claim in and to the property. In addition, you may purchase the real estate without having any knowledge of these rights or claims. In either event, these rights or claims remain attached to the title to the property that you are buying until they are extinguished.
The Past Can Determine Your Future
Generally, a person thinks of insurance in terms of the payment of future loss due to the occurrence of some future event. For instance, a party obtains automobile insurance in order to pay for future loss occasioned by a future “fender bender” or for the future theft of the car. Title insurance is a unique form of insurance. It provides coverage for future claims or future losses due to title defects which are created by some past event (i.e., event prior to the acquisition of the property.) These risks are far less obvious than those protected against by automobile insurance, but can be just as devastating. The following information will answer some commonly asked questions about title insurance.
Will You Get Clear Title?
It is of utmost importance that you receive clear title to the property when you purchase real estate. In order to do so, you must first be informed of any existing rights or claims that may, in the future, threaten your title and possession to the property. Title insurance provides you with this twofold protection.
How Do You Find Out What Claims Exist?
In order to determine the status of title, Chicago Title conducts a diligent search of the public records for those documents associated with the property. Chicago Title then examines those recorded documents in order to determine if there are any rights or claims that may have an impact upon the title to the property. The title search may reveal the existence of recorded defects, liens or encumbrances upon the title such as unpaid taxes, unsatisfied mortgages, judgments and tax liens against the current or past owners, easements, restrictions and court actions. These recorded defects, liens and encumbrances are reported to you prior to your purchase of the property. Once reported, these matters can be accepted, resolved or extinguished prior to the closing of the transaction. In addition, you are protected against any recorded defects, liens or encumbrances upon the title that are unreported to you and which are within the coverage of the particular policy issued in the transaction. This is the first benefit you receive from title insurance.
What About Undiscovered Claims?
The title to the property that you have purchased could be seriously threatened or lost completely by hazards which are considered “hidden risks.” “Hidden Risks” are those matters, rights or claims that are not shown by the public records and, therefore, are not discoverable by a search and examination of those public records. Matters such as forgery, incompetency or incapacity of the parties, fraudulent impersonation, and unknown errors in the records are examples of “hidden risks” which could provide a basis for a claim after you have purchased the property. In order to protect you against this possibility, Chicago Title provides insurance coverage for such claims. This is the second benefit you receive from title insurance.
How Does a Title Insurance Policy Protect Against All These Claims?
If a claim is made against your insured title, Chicago Title Insurance Company protects you by: (1) Defending your title, in court if necessary, at no cost to you, and (2) Bearing the cost of settling the case, if it proves valid, in order to protect your title and maintain your possession of your property.
Title Insurance Protects Your Asset
Title insurance gives you the assurance that possible clouds on title to the property you are purchasing – which can be discovered from the public records – have been called to your attention that such defects can be corrected before you buy. Additionally, it is insurance that if any undiscovered claims covered by your policy arises out of the past to threaten your ownership of real estate, it will be disposed of, or you will be reimbursed exactly as your title insurance policy provides.
Only One Premium
Unlike other forms of insurance, the original premium is your only cost as long as you or your heirs own the property. There are no annual payments to keep your Owner’s Title Insurance Policy in force.
WHY DO YOU NEED TITLE INSURANCE?
To protect possibly the most important investment you’ll ever make – the investment in your home.
With a title insurance policy, you as owner, have an indemnity contract that will reimburse you for loss in the event someone asserts a claim against your property that is covered by the policy.
How can there be a title defect if the title has been searched?
Title insurance is issued after a careful examination of copies of the public records. But even the most thorough search cannot absolutely assure that no title hazards are present, despite the knowledge and experience of professional title examiners. In addition to matters shown by public records, other title problems may exist that cannot be disclosed in a search.
What title insurance protects against
Here are just a few of the most common hidden risks that can cause a loss of title or create an encumbrance on title:
- False impersonation of the true owner of the property
- Forged deed, releases or wills,
- Instruments executed under invalid or expired power of attorney;
- Undisclosed or missing heirs;
- Mistakes in recording legal documents
- Misinterpretations of wills
- Deeds by persons of unsound mind
- Deeds by minors
- Deeds by persons supposedly single, but in fact married
- Fraud
- Liens for unpaid estate, inheritance, income or gift taxes
What protection does title insurance provide against defects and hidden risks?
Title insurance will pay for defending against any lawsuit attacking your title as insured, and will either clear up title problems or pay the insured’s losses. For a one-time premium, an owner’s title insurance policy remains in effect as long as you, or your heirs, retain an interest in the property.
What this means to you
The peace of mind in knowing that the investment you’ve made in your home is a safe one.
With the growth of the secondary mortgage market and planned unit developments, virtually all residential real estate transactions involving a mortgage now involve the use of title insurance.
Title insurance provides protection against defects in title to a particular property and protects the insured from any future claims to the property made by another party due to circumstances that occurred prior to the issuance of the policy. It is a contract of indemnity issued by the title insurance company.
Title insurance companies provide insurance in two ways – a Mortgagee’s Policy and an Owner’s Policy. The title insurance which the client is required to purchase for the lender is a Mortgagee’s Loan Policy. It provides protection to the lender for its lien interest in the property. It does not afford any coverage or protection to the owner of the property. Therefore, it is necessary for the owner to obtain either an attorney’s opinion regarding title or an Owner’s title insurance policy to protect their interest in the property and assure them that any future sale of the property will not be hindered by title objections that originated before their ownership of the property began. The decision to have an attorney examine title and render an opinion or to purchase an owner’s policy is affected by, primarily, two considerations.
The first consideration is the cost involved. Depending upon whether or not the attorney charges by the hour or on a flat fee basis for the title opinion, the cost of that opinion can vary widely. On one extreme, these fees can be quite high if the charges are hourly, the property is abstract, and the abstract is a lengthy one. On the other hand, the fees can be quite reasonable of the property is torrens title. Title insurance premiums will not vary in this way, but are based upon the value of the property. Furthermore, because the client will be purchasing a loan policy as required by the lender. He or she will be eligible for what is called “simultaneous issue rates” for the owner’s policy. In the typical residential transaction, the simultaneous issue rates make the cost of an owner’s policy equal to or less than the cost of an attorney’s opinion. A reissue credit, a premium reduction given because there is or was a title insurance policy issued on the property before, can also save money. A copy of any previous title insurance policy must be submitted to the title company before the abstracting information is examined and the commitment issued to receive a reissue credit.
The second consideration is the difference in coverage between an attorney’s opinion and owner’s title insurance. An attorney’s opinion assures the client that the title to the property is in certain person or entity subject to stated exceptions – typically easements, covenants, restrictions, mortgages, mechanic’s liens, and judgment and tax liens. Also, matters outside the scope of the examination, including real estate taxes and assessments, parties in possession, access to the property from a public street. Matters which would be disclosed by an accurate survey, zoning laws and building codes and mechanic’s leins not filed as of the date of certification of the abstract, are excepted or excluded from the opinion rendered. An owner’s policy of title insurance will offer the same “coverage” offered by an attorney’s opinion and more. The standard ALTA owner’s policy also insures against lack of access to the property from a public street, mechanic’s liens not of record at time of closing, and, assuming that the title insurance company conducts the closing and records the documents which result, the title insurer covers any title defects arising in the “gap period”. That being the period of time between the effective date of the title commitment, which is also the date of the certification of the abstract, and the actual date the closing documents were recorded at the county. In light of its broader coverage and competitive cost, title insurance is usually the best opinion for the typical residential transaction.
The Closing
Once all the terms and conditions of the purchase agreement have been fulfilled, and all closing conditions satisfied, the transaction is closed and the safe and accurate transfer of property and money has been accomplished.
Division of Charges
The method of dividing the charges for the services performed through the closing or as a result of closing varies from place to place. The fees and service charges to be divided might include, for example, the title insurance policy premium, closing fee, any transfer taxes, recordation fees and cost in connection with any loan being obtained. Unless there is some special agreement between the buyer and seller as to how these charges are to be paid, local custom will generally be followed in drafting the instructions to the escrow holder as to how they are to be divided.
Letter of Indemnity Requests:
Please email your request to: production@title-smart.com or fax to: 651-779-3066.
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