What is Title Insurance?

9 Aug

Though most individuals are familiar with homeowners’ insurance, not all home owners are knowledgeable about title insurance.

What is Title Insurance?

In a nutshell, title insurance covers events that may have happened before the date a title was issued to a new party, and it does not cover events that happen after issuance. In other words, it protects the new owner from any missteps of the previous owner.

Before a new title insurance policy is issued, an insurer will do a title search. This search tends to reveal a number of possible issues:

  • incorrect names on the title
  • improper vesting
  • incorrect notary acknowledgements
  • outstanding mortgages
  • tax liens
  • court judgments
  • easements

Thankfully most of these issues can be cleared up and the insurance process may move forward. With the lender doing this in-depth search ahead of time and making sure that the titles are clean before insuring them, the risk of claims being filed is greatly decreased.

For this reason, many title insurance fees are relatively low. In fact, many require only a one-time fee. This also helps to protect the individual seeking to obtain the title. If there are any issues that arise that cannot be cleared ahead of time, individuals could decide that it is not a proper investment.

 Common Title Problems

Even considering the diligence that goes into researching and clearing titles, there are still title problems that individuals may face. Fraud is a major component to possible issues. Prior owners may have forged documents, power of attorney, mortgages or satisfactions or releases of mortgages.

Even worse, they could impersonate the true owner of the property all together.

There could also be instances where an individual is unintentionally committing fraud if they think they have the power to sell a property but do not. This scenario is more prevalent in cases of inheritance, divorce, spousal death, dealing with minors, incompetence, or undisclosed heirs.

Outside of fraud there are a few other instances where individuals may have issues with purchased titles. Individuals may purchase a clean title, yet have limited or restricted access to the property. There could also be some unintentional issues with documentation, such as:

  • errors and omissions in transcriptions
  • failure to preserve original instruments
  • incorrect indexing
  • lack of authority of notary
  • inadequate descriptions
  • incorrect interpretations of wills
  • invalid tax titles

These issues may not be easy to address and may prevent the sale of title indefinitely. Unfortunately, for those who may have already begun the process to purchase a property or home, these issues can lead to financial loss if the problem cannot be rectified.

 

 

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