What is Title Insurance and Why do I Need it?
You probably have insurance for your car, health, dental, life, house, or apartment. You may even have insurance for your electronics, wedding rings, or other personal or household items. You probably understand how insurance protects you for these things but do not necessarily understand what title insurance does or why you need it. Your future home is likely one of the largest, if not the largest, investment and asset you will own. You do not only need to protect it against damage from fires or floods, but you also need to protect your ownership rights to the property. For that reason, it is important to make sure your purchase is protected and that you are getting a “clean title” to the property.
Clean title means that you are becoming the owner of the property, free and clear of all prior liens, judgments, and other encumbrances that may impact your right and enjoyment to the property you just purchased. These encumbrances could be liens or rights by governmental bodies such as taxing agencies or municipalities. They can also be from prior mortgages or contractors having performed work on the property. It is also common to see a lien from the prior owner’s family or heirs. These circumstances are a non-exclusive list, and any of these rights could impact your exclusive right to the property. Because of these circumstances, this is where title insurance comes in.
Why do I need Title Insurance?
Unlike other forms of insurance, title insurance protects you from future claims based upon things that happened in the past as opposed to things that will happen in the future. When you purchase insurance for your car, the company is insuring against future damage to you, your vehicle, or others in the event there is a future accident.
With title insurance, the company is insuring against things that have already happened but are unknown to the public record or you. When we review a title search, The Shulman Zale Legal Group will review the title to the property you are purchasing to make sure the rights of prior owners or other encumbrances have been extinguished or terminated prior to you becoming an owner.
Sometimes, however, no matter how careful the review was of the public record, some things will not be discovered until after you have purchased your property. This is where title insurance is most important. Some of these are discussed below.
What can affect the title to my property?
At the time of closing, you will be provided with a deed to the property. You would be justified in assuming that once you possess the deed you own the property and can go on about your business. However, what happens if a deed or mortgage in the chain of title is a forgery? What happens if a deed or a mortgage was signed by a person underage? What happens if a deed or a mortgage was signed by a person who was mentally incapable of signing or otherwise incompetent?
These issues are concerns that could impact the chain of title and, ultimately, your ownership. Additional issues that could appear are a deed or a mortgage was made pursuant to a void power of attorney; a child of a prior owner may have a superior right to some portion of the property; a deed or mortgage may have been made while under the influence of fraud or duress. Occasionally a deed is obtained pursuant to a court proceeding which may have had a defect in the proceeding. That defect could make that deed voidable.
Countless other possibilities could impact your ownership of the property. These defects would likely not appear in the public record but will likely be covered by your title policy.
What does the Title Policy cover?
At the time of closing, you will be provided with an Owner’s Title Policy, which will cover or protect you against any loss or damage resulting from those things provide for as covered risks.
For example, the title policy often covers damage caused by title being held by someone else other than the person or entity the person who sold you the house. The policy typically covers a loss from a defect in title due to forgery or fraud. For example, a false impersonation of the true owner of the house. Additionally, the policy will also typically cover mistakes in recording legal documents. The policy should also typically cover deeds by persons who are underage or incompetent.
There are many other covered risks, and it is important that you speak to an attorney about what is covered under your policy and how a policy protects you. At Shulman Zale Legal Group, we are Title Agents and work with Title Companies to make sure you are receiving clean title and are protected from risks due to defects in title.