The Crucial Reason Why You Need Title Insurance
June 13th, 2007 categories: Buying San Diego Real Estate, San Diego Real Estate
Real Estate is one of your most valuable assets. Real Estate is a form of wealth that is protected by many laws at the local, state and national levels. These laws have been enacted to protect your ownership of real estate and to protect your “Bundle of Rights” conveyed with owning it.
The current owners, the owner’s family, and the owner’s heirs have extremely strong rights or claims in and to the property that you are buying. Those that may have an interest in or lien on the property could be an governmental body, contractors, lenders, judgment creditors, the IRS, or various other individuals or companies.
The real estate (land, residence or commercial property) may be sold to you without the knowledge of the party having a right or claim on the property. In addition, you may be purchasing the real estate without having any knowledge of their rights or claims against the property. In either event, any rights or claims remain attached to the title to the property that you are buying until they are removed.
What Took Place In The Past Could Determine Your Future. Generally, a person thinks of insurance in terms of the payment of future loss due to some occurrence of some future event. For instance, when you buy automobile insurance, you are wanting to protect the vehicle from some future loss, like a “fender bender” or theft or even a serious accident.
Title insurance is a unique form of insurance. It provides coverage for future claims or future losses due to title defects which were created by a past event ( an event prior to the acquisition of the property.) These risks are far less obvious than those protected against by automobile insurance, but can be just as devastating or even more so.
Will You Get A Clear Title When You Buy a Property? It is of utmost importance that you receive clear title to the property when you purchase real estate. In order to do so however, you must first be informed of any existing rights or claims that may exist. These could threaten your title and possession in the future.
How Do You Find Out What Claims Might Already Be On The Property? In order to determine the status of title, the title company conducts a diligent search of the public records for those documents associated with the property. The title company then examines those recorded documents in order to determine if there are any rights or claims that may have an impact upon the title to the property. The title search may reveal the existence of recorded defects, liens or encumbrances upon the title such as unpaid taxes, unsatisfied mortgages, judgments and tax liens against the current or past owners, local or state easements, restrictions and any possible court judgments. Any recorded defects, liens and encumbrances are reported to you prior to your purchase of the property. Once reported, these matters can be accepted, resolved or removed prior to the closing of the transaction. In addition, you are protected against any unrecorded defects, liens or encumbrances upon the title as long as they are within the coverage of the particular policy issued in the transaction.
This is the first benefit you receive from title insurance. So what about those possible claims that were not recorded? Are you protected?
The title to the property that you have purchased could be seriously threatened or lost completely by hazards which are considered “hidden risks.” “Hidden Risks” are those matters, rights or claims that are not shown by the public records and, therefore, are not discoverable by a search and discovery of those public records. Things like forgery, incompetency or incapacity of the parties, fraudulent impersonation, and unknown errors in the records are some examples of “hidden risks” which may provide a basis for a claim after you have purchased the property. In order to protect you against this possibility, the title insurance company provides this insurance coverage for just such claims. This is the second benefit you receive from title insurance.
So what if someone files a claim against your property? If you are properly insured with a title policy,the title insurance company protects you by
(1) Defending your title, in court if necessary, at no cost to you, and
(2) by bearing the cost of settling the case, if it proves valid. But in order to protect your title and maintain your possession of your property you must a valid title policy.
One thing to remember when thinking about title insurance is make sure you select a company that is a direct insurer (owns or has access to a shared title plant) and you can rest more confidently that if you have a title issue that comes up, that company will be there to protect your interests. When you are working with me on the offer to purchase, that is when you you will select the title insurance company. I will supply for you a list of some of the companies I have worked with or may may select a company you know about.
Making sure title insurance is provided will give you the assurance that possible clouds on title to the property you are purchasing – which can be discovered from the public records – have been called to your attention. Also that any such defects can be corrected before you buy. Additionally, it is insurance coverage if any undiscovered claims covered by your policy arises out of the past to threaten your ownership of real estate after you purchase it. It will be insure that it is disposed of or you will be reimbursed exactly as your title insurance policy provides. Be sure to read that part when you get your Preliminary Title Policy. The one that says the title company will insure the property and if there are any exceptions noted. Then find out if the title company will pay the entire amount of any loss. The more you know and understand about title insurance , the more piece of mind you will have. Remember, Title Insurance provides you with two fold protection. Another interesting tip for you. Should the owner counter out your selected Title Insurance company choice in a counter offer situation, make it clear that this insurance is for your benefit, not theirs and then counter it back in your offer to purchase. Stick your guns and YOU decide.
Another interesting part of title insurance is the ability to purchase a Binder on your new policy in the event that you may be selling or liquidating the property within two years of your original purchase. This is called a Binder Policy and I will write a separate post on that issue. Watch for it. This tip could save you a lot of money.
