What is Title Insurance

Title insurance is actually a process, with the insurance policy being the end product. This process starts with a comprehensive search of public records to determine if any liens or other encumbrances are attached to the tile. During the search, detailed information from potentially hundreds of sources is gathered and reviewed, including tax records, federal state and local records, court judgments, deeds and an evaluation of whether the property characteristics are accurately reflected by the information on the title. Not surprisingly, one in four title searches uncovers some problem that must be rectified prior to the close.

What kind of problems?

There are four primary categories that can cloud a title and result in significant risk for a prospective homebuyer. The title search meticulously seeks out and evaluates any known indication of any of these issues; however, even the most comprehensive searches may not uncover every hidden area of title risk:

  • Liens can be placed against a title by any party with an unpaid financial obligation against the property owner. The nature of these claims can be everything from unpaid child support or alimony to unpaid parking tickets, taxes or bills from contractors like electricians or plumbers.
  • Errors may have occurred during the course of previous ownership changes that could have included recording errors, typographical errors, incorrect legal descriptions, incorrect indexing of land records or title search errors resulting from undisclosed issues like unsatisfied claims not shown in the public record.
  • Claims against a property may come from missing heirs or heirs born after execution of a will, the dower or courtesy rights of spouses of former owners, claims from ex-spouses or even from government or corporate entities. They can also arise when the mental competence of a grantor of deed is called into question; when wills are not properly probated or are misinterpreted; when a title was transferred by a minor; or when a grantor of a deed did so while under undue influence.

What does title insurance cover?

Once the title search has been concluded and curative work to resolve any issues has been completed, title insurance can then be issued. The title insurance policy protects policy owners against covered financial losses associated with claims against the title that were not discovered during the title search process. It also insures against the title being rejected by the subsequent buyer of your property due to pre-existing title defects and covers losses that may arise after the property is sold if title covenants were included in the sales contract. This includes attorney fees and costs associated with defending the title and insures that the policy holder is the legal owner and has access to the property. Since the final title insurance policy may have some coverage exceptions (such as conditions, utility and other easements or set-back requirements,) policy owners must carefully read the coverage information for their specific policy provisions.