What is title insurance and why do I need it?

Title insurance is issued to protect one of the most important investments you will ever make in your lifetime. It insures and protects you against title defects, judgments, liens, and/or other encumbrances and restrictions on the property should they surface after closing. Separate title insurance policies are generally issued simultaneously to both the buyer(s) (a/k/a "Owner's or Fee Policy") and lender (a/k/a "Lender's or Loan or Mortgagee Policy") in most real property transactions. The Owner's Policy protects a buyer's interest in the amount of the purchase price of the property. Whereas, the Loan Policy protects a lender's interest, not the buyer, on the property in the amount of the outstanding balance of the loan. An attorney can examine the results of a title search to be sure your title is clear, and if not, can help to clear any defects even before your closing date. The following is an example of how the buyer and lender is protected:

Assume you buy a home for $200,000 and put down $40,000. The bank now holds a mortgage lien on the property for $160,000 (amount of your note). A Loan Policy protects the lender's interest up to $160,000, but the buyer's down payment would not be covered. Whereas, an Owner's Policy purchased for the full value of the property will protect the buyer up to $200,000. On a Loan Policy, the title insurance company would only defend the lender and the buyer would have to assume the financial burden of their own legal defense. If the defense is not successful, the result could be a total loss of title. In addition, if the loan is paid off, the indirect benefit of a Loan Policy expires upon payoff (and reduces as the loan is being paid off).

What are title defects?

Examples of title defects include unpaid taxes, judgments or liens against the seller (or their predecessor in title), unsatisfied mortgages, and restrictions limiting the use of the land. If you have purchased an Owner's Policy, and if some form of defect is discovered after closing, the title insurance will pay for defending against any lawsuit attacking the title as insured and will either clear up those title defects or pay the insured's losses. Moreover, the Owner's Policy remains in effect as long as the insured, or the insured's heirs, retain an interest in the property, or have any obligations under a warranty in any warranty deed of conveyance of it.

How can there be title defects outstanding if a search and policy has been issued on the property?

Title insurance is issued only after a careful examination of copies of the public records. Even the most thorough search cannot absolutely assure that title risks or defects are not present. There could be other title problems that may not be found in a search. These are called "hidden risks" or defects and can cause loss of title and right to ownership or create an encumbrance on the title. The most common of these hidden risks are:
 

• false impersonation of the true owner of the property

• confusion due to similar or identical names

• undisclosed or missing heirs

• defective deeds

• releases or wills

• instruments executed under invalid or expired power of attorney

• mistakes or clerical errors in recording legal documents

• misinterpretations of wills

• deeds by persons of unsound mind or other form of mental incompetence

• deeds by minors

• deeds by persons supposedly single, but in fact are married (i.e. homestead property)

• liens for unpaid estate, inheritance, income or gift taxes

• fraud and forgery

What is a title?

Title is the legal evidence of a person's ownership rights to the property. Marketable title is customarily the quality of title desired. Marketable title is title that a reasonable buyer would accept because it appears to lack any defect and to cover the entire property that the seller has purported to sell. An instrument (usually a deed) constitutes evidence of title. Title evidence is generally recorded in the public records. The chain of title is a history of all the transactions shown in the public records affecting a particular tract of real property. The history of that property is found by conducting a title search.

What is a title search?

A title search is a detailed examination of the public records concerning real property. The records found might include deeds, court records, property and name indexes. The purpose of conducting the search is to verify the seller's actual right to transfer ownership and to discover any claims, defects and other rights or burdens on the property.

Why is transferring title to real estate more involved than transferring title to other items, such as an automobile?

Land is fixed, or permanent, and can have many owners over the years. Various rights in the land, such as easements, mineral, air or utility rights, may have been acquired by others by the time you come into possession of it. It is necessary to determine whether any rights are outstanding before clear title can be transferred to the buyer and so that you know which of these rights will continue with respect to the property.

Isn't a deed sufficient enough?

Not necessarily. A deed is just a document by which the right to ownership in land is apparently transferred. It is evidence, not proof of ownership, and does not do away with rights others may have in the subject property. Furthermore, a deed won't show you liens or claims that may still be outstanding against the title.

I am building a home and the builder already has title insurance on the property. Why do I need to purchase title insurance again when I purchase the land from the builder?

A title policy insuring the builder does not protect the buyer. Furthermore, many things could have happened to the property since the builder's policy was issued. Liens, judgments and unpaid taxes, which the prior owners were responsible for, may be disclosed after you purchase the property instead of beforehand.

I'm buying property from someone who originally purchased it less than a year ago. Why do I need another title policy?

Even though the title is less than a year old, the seller could have done some things to encumber the title. For example, he/she could have obtained mortgages, conveyed all or a portion of the property, granted easements or constructed improvements that encroach on adjacent property.

How much does title insurance cost?

Title insurance is based on the insured amount (i.e. the purchase price in the case of an Owner's Policy and the loan amount in the case of a Loan Policy). Unlike other forms of insurance which are generally paid on an annual basis, title insurance is paid only once. If you should die, the coverage remains on the property for the benefit of your heirs. Title insurance is calculated based on a promulgated rate. In the state of Florida, the promulgated rates are as follows: