January 2013

What is title insurance?

Title insurance protects a homeowner from financial losses that occur if certain problems develop regarding the ownership of property.

While a closing attorney will examine the title to property prior to closing, there are a multitude of title defects that even the most thorough title exam will not reveal.  Some examples of common risks that can create an encumbrance on a title include the following:

  • False impersonation of the true owner of the property
  • Forged deeds, releases or wills
  • Undisclosed or missing heirs
  • Instruments executed under invalid or expired power of attorney
  • Mistakes in recording legal documents
  • Misinterpretations of wills
  • Deeds executed by persons of unsound mind
  • Deeds executed by minors
  • Deeds executed by persons supposedly single, but in fact married
  • Liens for unpaid estate, inheritance, income or gift taxes
  • Fraud
  • Missing discharges of mortgages from a prior owner

A title policy insures against title claims to the property caused by any of the above, as well as many other situations.

Why buy an Owner’s Policy?

Real estate is often the most substantial and important investment a person will make, and a purchaser needs to make sure that his or her interest in the real estate is adequately protected.  Title insurance provides this protection by insuring the property against certain title defects.

There are two types of title insurance policies: an Owner’s Policy and a Loan Policy.  While the Loan Policy is required by the mortgage lender, it does not protect the property owner.  In order to protect his or her own interest, a buyer must purchase an Owner’s Policy.  The Owner’s Policy is a one-time premium paid at closing related to the value of the home.  Once the premium is paid, the Policy remains in effect as long as the insured or the insured’s heirs retain an interest in the property.

If a title problem comes to light after the purchase of an Owner’s Policy, the title insurance company will pay the costs of defending against any covered claim, as well as protecting from financial loss, up to the policy limits.  It protects the owner from title defects which existed at any time before the owner’s purchase of the property.  Even if a title issue is discovered at the time of selling the property, the insurance will often allow the closing to proceed, with the assurance to the new buyer that the title company will resolve the issue.

In a nutshell, an Owner’ Policy protects a homeowner up to the policy limits from certain title defects which could exist in his or her home for a one-time cost.

Material presented on the King & Navins, P.C. website is intended for information purposes only. It should not be construed as legal advice or the formation of an attorney-client relationship. Please consult an attorney for individual advice regarding your own personal situation.