One question I get a lot from clients is “What is title insurance?” followed shortly by, “And why do I need it?”.
Both good questions.
In fact, I often get questions about the role of the title company in a real estate transaction and so I thought we’d do a two part series looking at what the title company does. This week we’ll look at title insurance.
Title Insurance: I need to insure what?
Fortunately for you, I’m not going to be doing the explaining here. I went and talked with Lisa Bain of Title One Corp to help us out. You may remember she forwarded me the article that inspired the post, Why Still Rent? just a few weeks ago. Here she is explaining title insurance after which we do a little Q & A.[youtube=http://www.youtube.com/watch?v=vgKSSZWE_jg&w=680&rel=0]
Q: Although I think most know what title is, can you give a definition?
A: The short definition is title to a piece of real property defines all the associated rights that go along with that property. Â For instance, if you buy a house on the bench in Boise the title provides you possession of the land, the house and any other associated rights to that piece of real property. In other words, the title is what legally provides you with a claim to that property.
Q: So why is “chain of title” so important in Real Estate?
A:Â Chain of title refers to the transfer of a given property from the present owner all the way back to the original owner of the property, with each transfer being one link in that chain. It’s important because someone looking to buy a house wants assurance that no one other than their mortgage lender has a legal claim to that property.
It’s sometimes easier to understand it if you think about it in terms of a vehicle title. Let’s say, for example, Adam wants to buy a car Bob has for sale. Bob bought the car together with his ex-wife, whom he no longer has contact with. Adam buys the car, money is exchanged and a bill of sale is signed, but the title was never transferred from Bob’s ex-wife. Who has the legal claim to the car?
In real estate transactions fraud is not the only issue that may appear, there could also be taxes owed or liens attached to the property, missing heirs, invalid documents, expired powers of attorney, deeds by minors or people not of sound mind, deeds by people supposedly single but who are married, and others.
Q: And that’s where Title Insurance comes into play?
A: Absolutely. The title insurer performs a detailed search of the chain of title PRIOR to the purchase closing. Should anything appear during the search, there is time to resolve the issue before title is transferred to the new owner. Once any issues are resolved, the insurer issues a Title Commitment, or a commitment to issue a title insurance policy at closing. Title insurance is the insurer’s way of guaranteeing their title work. If you were to buy a property and later find out that something had been missed in the search, your title insurance policy would protect you from losses.
The Wrap up
Next week I’ll talk with Lisa about that other thing your Title Co handles in your real estate transaction, escrow! You can find more info about Title Insurance at Title One’s website including “What is Title Insurance?” and a break down of the different Title Policy Coverages Title One offers.