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Common Questions about Title
Insurance
Buying a home
is, for many of us the biggest single investment
we'll ever make. Knowing this, most homeowners
provide for the security and safekeeping of their
homes by insuring them against hazards such as fire,
theft and weather damage.
But there is another hazard that can pose an even
greater risk to home ownership: Defects in the title
to your property can cause you to lose part or all
of the investment in your home. Fortunately, there
is a way to protect your investment from these title
defects. It comes in the form of title insurance.
What is title insurance and why do you need it? In
the following pages, we've listed the answers to
these and other commonly asked questions. We suggest
that you read through this information carefully. It
will help you to better understand the value of
title insurance in protecting your home ownership,
and the general real estate information will help
make the home-buying process a smoother one.
Table of Contents
Glossary of Real Estate Terms
What is a title?
A title is the
foundation of property ownership. It is the
owner's right to possess and use the property.
What is title
insurance?
Title insurance is
your policy of protection against "hidden
hazards" - resulting in a claim against your
ownership.
What is a title
search?
A title search is a
detailed examination of the historical records
concerning a property. These records include
deeds, court records, property and name indexes,
and many other documents. The purpose of the
search is to verify the seller's right to
transfer ownership, and to discover any claims,
defects and other rights or burdens on the
property.
Why is transferring the title to real
estate different from transferring the title of
other items, such as a car?
Because land is
permanent and can have many owners over the
years, various rights in land (such as mineral,
air or utility rights) may have been acquired by
others by the time you come into possession of
it, even if the land has never before been built
upon. So in order to transfer a clear title to a
piece of land, it is first necessary to
determine whether any rights are outstanding.
What kind of problems
can a title search reveal?
A title search can
show a number of title defects and liens, as
well as other encumbrances and restrictions.
Among these are unpaid taxes, unsatisfied
mortgages, judgments against the seller and
restrictions limiting the use of the land.
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Are there any problems
that a title search cannot reveal?
Yes. There are some
"hidden hazards" that even the most diligent
title search may never reveal. For instance, the
previous owner could have incorrectly stated his
or her marital status, resulting in a possible
claim by a legal spouse. Other "hidden hazards"
include fraud and forgery, defective deeds,
mental incompetence, confusion due to similar or
identical names and clerical errors in the
records. These defects can arise after you've
purchased your home and can jeopardize your
right to ownership.
How much could I lose
if a claim is filed against my property?
That depends on the
claim. In an extreme case, you could lose your
entire home and property - and still be liable
to pay off the balance of your mortgage. Most
claims aren't that dramatic, but even the
smallest claim can cost you time, money and
aggravation, and you may have to pay costs for a
legal defense.
How does title
insurance protect my investment if a claim
should arise?
If a claim is made
against your property, title insurance will, in
accordance with the terms of your policy, assure
you of a legal defense - and pay all court costs
and related fees. Also, if the claim proves
valid, you will be reimbursed for your actual
loss up to the face amount of the policy.
The owner
of the property has a deed. Isn't that proof of
ownership?
Not necessarily. A
deed is just a document by which the right of
ownership in land is transferred, whatever that
right may be. It's not proof of ownership, and
it doesn't do away with rights others may have
in the property. In addition, a deed won't show
you liens or claims that may be outstanding
against the title.
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The owner of
the property I want to purchase has lived in the
home for only six months. He had a title search
done six months ago. Why do I need another one?
Because the owner
could, in a very short time, do many things to
encumber the title. For example, he could grant
easements or construct improvements that
encroach on adjacent property. He could use the
property as collateral for a loan or have
received money, judgments, or liens which can
attach to the real estate. It is necessary to
conduct an up-to-date title search to uncover
any such problems.
If the builder
of my
home already has title insurance on the
property, why do I need it again when I purchase
the land from him?
A title policy
insuring the builder does not protect you. Also,
a great many things could have happened to the
land since the builder's policy was issued.
There may be an increase in value in the
property which calls for additional coverage.
Liens, judgments and unpaid taxes for which the
builders or prior owners were responsible may be
disclosed after you purchase the property -
causing you aggravation and costing you money.
What is the
difference
between an Owner's policy and a Loan policy?
The seller provides
an owner's title insurance policy, which is
evidence to the buyer that there is a marketable
title to the subject property. If there are
problems with the title, a title search reveals
them and permits resolution of the problem prior
to closing.
How long
does my
coverage last?
For as long as you
or your heirs retain an interest in the property
and, in some cases, even beyond.
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