Secure Your Investment with an Owner’s Policy

Step 1

The Title Search

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What's in a Title Search

You've decided to purchase a home and hope to take possession as soon as possible. The terms have been agreed upon and all the financial arrangements have been made. But there's one important detail remaining. Before you can close, a title search must be made.

 

The most accurate description of title is a bundle of rights in real property. A title search is the process of determining from the public record just what these rights are and who owns them.

 

A title search is a means of determining that the person who is selling the property really has the right to sell it, and that the buyer is getting all the rights to the property (title) that he or she is paying for.

 

The search process can be undertaken by the title company in those jurisdictions where the company maintains offices. In many of the real estate transactions today a title insurance policy is purchased to assure the buyer that he or she has purchased a valid title.

 

In those transactions where title insurance is involved, the title company must determine insurability of the title as part of the search process. This leads to the issuance of a title policy, which insures the existence or non-existence of rights to the property.

 

So what are the steps to a Title Exam?

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Chain of Title

This is simply a history of the ownership of a particular piece of property, telling who bought it and sold it, and when. The information may be derived from public records, usually from the county Recorder's Office.

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Tax Search

This is a search to determine the present status of general real estate taxes against the property. The tax search will reveal if taxes are current or whether any taxes are past due and unpaid from previous years. In addition, the tax search will indicate the existence of any special assessments against the land and, if so, whether or not these assessments are current or past due.

A due and unpaid tax or special assessment is a prior lien or claim on the property above all others. If a buyer purchases property with unpaid and past due taxes or assessments against it, he or she is likely to find a government body, the village, county or state, placing the property up for sale to pay those taxes or assessments. A tax search reveals the status of the taxes. Title insurance protects the buyer against loss from unpaid and past due taxes and assessments.

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Judgment and Name Search

One of the most important parts of the title search is to determine if there are any unsatisfied judgments against the seller or previous owners which were in existence while they owned the title. A judgment is a general lien against the debtor's real estate and constitutes security for any money owed under the judgment. The real estate can be sold to satisfy the judgment.

It is extremely important to be sure that a title is not subject to judgments against the seller or previous owners. Title insurance provides this protection. A judgment against a person named Smith may affect the title of a seller named Smith, depending on whether or not they are the same person. So all possible variations of the name must be examined.

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For example, the name Smith might be spelled Schmidt, Schmid, Schmidtt, Schmidz, Schmied, Schmiedt, Smid, Smythe, and so on. The name Nichols can be spelled 73 different ways, from Nachols to Nychals. The task is to determine which of these applies to the owner in question. First names have to be checked, too.

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Rights established by judgment decrees, unpaid federal income taxes, and mechanic's liens all may be prior claims on the property, ahead of the buyer's or lender's rights. If a judgment is discovered that constitutes a defect in the title, it is pointed out, and the seller must then eliminate it before the title of the new buyer can be insured free and clear of that judgment.

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Commitment

When these searches have been completed, the title company issues a commitment to insure, stating the conditions under which it will insure the title. The buyer and seller and the mortgage lender can proceed with the closing of the transaction after clearing up any defects in the title which may have been uncovered by the search and examination.

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The mortgage lender is as concerned as the buyer about the quality of the title because the property is to be security for the new mortgage loan. The mortgage lender requires assurance that it has a valid first (or another acceptable priority) mortgage lien on the property.

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The lender's title insurance, however, doesn't protect the new buyer of the property. Although the land is the same, the interest of the buyer and the interest of the lender are very different. The provisions of a lender's title insurance policy are very different from those of a buyer's policy, so the buyer should obtain his own policy, often issued simultaneously with the lender's policy.

 

Step 2 -Title Insurance

What the homebuyer should know about title insurance

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Why the Buyer Needs Title Insurance

Without a title insurance policy, you may not be fully protected against errors in public records, hidden defects not disclosed by the public records, or mistakes in examination of the title of your new property. As a result, you may be held fully accountable for any prior liens, judgments or claims brought against your new property. However, your policy insures that if such an occasion arises, you will be defended free of charge against all covered claims and paid up to the amount of the policy to settle valid claims. With a title insurance policy, you need never to worry that your new property's history will come back to haunt you.

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The Lender's Policy

A lender goes to great lengths to minimize the risk of lending money for the purchase of real estate. First, credit is checked as an indication of the borrower's ability to repay the loan.

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Then, the lender seeks assurance that the quality of the title to the property to be acquired and which will be pledged as security for the loan is satisfactory. The lender does this by obtaining a loan policy of title insurance.

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NOTE: The loan policy does not protect the borrower.     

                                                                                             

The loan policy protects the lender against loss due to unknown title defects. It also protects the lender's interest from certain matters which may exist, but may not be known at the time of the sale.

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But, this policy only protects the lender's interest. It does not protect the borrower. That is why a real estate purchaser needs an owner's policy, which can be issued at the same time as the loan policy, for a one-time fee.

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What is the danger of loss?

If the lender has title insurance protection and the owner does not, what possible danger of loss exists?

As an example, assume real estate was purchased for $100,000. A down payment of

$20,000 is made, and a lender holds an $80,000 mortgage lien, or beneficial interest. The lender acquires title insurance protecting the lender's interest up to $80,000. But the purchaser's down payment of $20,000 is not covered.

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What if some matter arises affecting the past ownership of the property? The title insurance company would defend and protect the interest of the lender. The purchaser, however, would have to assume the financial burden of his or her own legal defense. If the defense is not successful, the result could be a total loss of title.

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The title insurance company pays the lender's loss and is entitled to take an assignment of the borrower's debt. The purchaser loses the down payment, other equity in the property that may have accumulated, and the property. And the balance on the note is still due!

Remember that when you sign a mortgage you warrant to the lender that you have good title. So if a title problem arose, you would not only have to pay the insurance company for indemnifying the lender, but also damages to the lender itself for breach of warranty.

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How can there be title defect if the title has been searched and a loan policy issued?

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.

 

Remember that you cannot hold the title company liable for any missed liens. There is only privity of contract between the lender and the title company. Simply put is that the lender hired the title company and not the borrower.

 

What title insurance protects against.

 

Errors or omissions by county officials or their employees in maintenance of public records.

Errors or omissions by employees of the company in the process of examining and insuring the title to the real estate described in the policy.

Missing heirs as a result of incomplete or wrongful or non-existent probate court records in the chain of title.

Estate Tax Liens

Dower of spouses of owners in the chain of title whose interests were not disclosed in the public record, or the release of which was not properly secured.

Invalidity or impropriety of judicial actions in matters affecting the transfer of title or ownership of the real estate described.

Deeds of record obtained by fraud, or deeds of record which may be forged by reason of which the insured's title is defeated.

Forged mortgages, releases, waivers, assignments and cancellations of mortgages and mortgages cancelled by mistake.

Divorce proceedings outside of the county in which property is located. Bankruptcy proceedings had in a foreign county.

False personation of the true owner of the land.

Deeds and mortgages made by minors or persons of unsound mind. Deeds executed under expired powers of attorney.

Deeds of record which may be ineffective because delivered after the death of grantor or grantee, or without the consent of grantor.

Missing dower interests in title by reason of deeds by persons representing themselves

as single, but who are actually married.                                 

Birth or adoption of children after date of Will.

Wills not probated, or wills probated after deed is executed and delivered by heirs. Deed never delivered, but appears of record.

Release of dower of minor, husband or wife, under 18 years of age when there is no record proof of age of minor.

Falsification of records

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What protection does title insurance provide against defects and hidden risks?

Title insurance will pay for defending against any lawsuit attacking the 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 the insured, or the insured's heirs, retain an interest in the property, or have any obligations under a warranty in any conveyance of it. Owner's title insurance, issued simultaneously with a loan policy, is the best title insurance value a property owner can get.

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How much does an Owners Policy cost?

Let's say that Jim buys a house for $100,000 and obtains a loan for $100,000. A loan policy for a $100,000 loan will be $350. An owners policy for property worth $100,000 will be $500. You can get a discount if you purchase an owners policy within 30 days of the purchase of a loan policy. So if Jim gets an owners policy within 30 days of the closing his loan policy is only $250.

 

Remember to always ask questions if you do not understand any aspect of your home purchase.