Title Insurance 101

WHAT IS TITLE INSURANCE?

Title Insurance is an indemnity contract between the insured and the insurer (Title Company) which protects against loss or damages sustained by the insured due to the condition of title being other than as insured. The Beneficiaries of Title Insurance policies are real estate owners and mortgage lenders unlike other types of insurance which offer protection against future possible occurrences (i.e., Fire, Flood, Disability, or Death). Title Insurance insures against past occurrences, which could result in a claim at a future date. Title Insurance provides the insured "peace of mind" in knowing that they are receiving good and marketable title to the real estate they are purchasing.

WHAT IS A TITLE SEARCH?

A title search is a thorough review or examination of the public records that pertain to real property ownership, and the rights/limitations in its use. The search period will begin with the current owner(s) and extend back in time for a period of 60 years (commonly referred to as the "chain of title"). During that search period, all documents affecting the subject property are reviewed for accuracy, completeness, and proper execution. Similarly, all owners of record during the search period are indexed to determine their ownership interests, marital status, and legal and mental capacity to enter into a contract to sell/buy real property. All conveyances must have been properly conducted and approved by the appropriate governmental departments, i.e., County Recorders Office, Auditors Office, etc. Once the title search is completed, the results are given to a title examiner (officer) who makes a determination as to the insurability of title.

WHAT KINDS OF PROBLEMS CAN A TITLE SEARCH REVEAL?

A title search can show any number of title defects and liens, as well as other encumbrances and/or restrictions. Among these are unpaid taxes, unsatisfied mortgages, judgments against Buyers/Sellers, and any restrictions or conditions 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 not reveal. For instance, a 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 County Records. These defects can arise after you've purchased your home and can jeopardize your right to ownership in part or completely.

WHY DOES THE BUYER NEED TITLE INSURANCE?

Without an Owner's Title Insurance Policy, you may not be fully protected against errors in the public records, hidden defects not disclosed by the public records, or mistakes made during the examination of the title of your new property. As a result, you may be held fully accountable for any liens, judgments, or claims brought against your new property. However, your Owner's Title Policy ensures 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.

WHO'S PROTECTED BY A TITLE INSURANCE POLICY?

For a one-time premium, an Owner's Policy of Title Insurance is your best protection against countless potential title defects that could deprive you of your ownership rights and the need for you to incur substantial legal expenses if a defect in your title arises. Similarly, a Loan Policy issued to your lender protects its mortgage interest in your property by insuring that its mortgage is a valid and enforceable lien. In the event of a claim, Guardian Title will either correct the covered title problems or will reimburse you and/or your lender for insured losses up to the amount of the policy and will defend against any lawsuit attacking the property as insured.

WHAT IS A HUD SETTLEMENT STATEMENT (HUD-1)?

This is a summary of the financial portion of the real estate transaction. The Title Company or closing agent is required by the Department of Housing and Urban Development to use the HUD-1 on virtually all one to four family residential real estate transactions involving a lender. The HUD will list the purchase price, loan amount, closing costs for both Buyer and Seller, and show all sums being charged and disbursed to the parties involved. It also clearly summarizes the total amount due from the purchaser.

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