Why is transferring the title to real estate different from transferring the title to other items, such as a car?
Because
land is permanent and can have many owners over the years, various
rights in land may have been acquired by others (such as mineral, air
or utility rights) 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 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.
What kinds 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.
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 marital status, resulting in a possible claim by
his 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.
What is title insurance?
Title insurance is your
policy of protection against loss if any of these problems—even a
"hidden hazard"—results in a claim against your 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.
Wouldn't an abstract show property limitations and restrictions?
Maybe—and
maybe not. An abstract is a history of the property title as revealed
by the public records. Abstracts may contain errors and do not disclose
"hidden hazards" that can threaten your property title if you do not
have a title insurance policy.
What about an attorney's opinion?
An
attorney's opinion is based on a search of the public records. So, once
again, even the most exhaustive search of these records may not reveal
everything. Unlike a title insurance company, an attorney is not liable
if you should suffer loss because of "hidden hazards" in the title.
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 get
married or divorced, or have a lien filed against the property. 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. Liens, judgments and unpaid taxes for which prior owners
were responsible may be disclosed after you purchase the property,
causing you aggravation and costing you money.
Are there different types of title insurance policies?
Yes.
Basically there are two different types of policies: a loan policy and
an owner's policy. The loan policy protects the lender's interest in
the property as security for the outstanding balance under the buyer's
mortgage. The owner's policy safeguards the buyer's investment or
equity in the property up to the face amount of the policy. (Title
insurers in many states offer increased policy coverage through
inflation endorsements to cover increases in value due to inflation).
How much does title insurance cost?
Probably
a lot less that you think. Charges vary in different sections of the
country, but generally the cost of title insurance (including search,
examination and related services) amounts to about one percent or less
of the cost of the property. And unlike other insurance premiums that
must be paid annually, a title insurance premium is paid one time only,
usually at settlement.
Where can I get title insurance?
From
any licensed title insurance company or its representatives working in
your state. When choosing a title insurer, it is important that you
look for a company with expertise and experience, as well as the
financial strength to protect you should a claim arise. Your broker or
attorney can recommend such a company.