Buying a property can be a complex process. One aspect that often gets overlooked or is misunderstood is the importance of clear title ownership. Title defects can disrupt your plans and cause you many problems. It is not sufficient to simply review on-line data bases. Fortunately, title insurance will offer protection. Before purchasing any property, you should learn how title insurance will safeguard your investment. While obtaining title insurance is “voluntary” if you purchase without a mortgage, most attorneys will insist that you obtain it to protect yourself. If you are closing with a mortgage lender, title insurance for the lender is a requirement. There is a simultaneous rate reduction if you also obtain coverage for yourself. There are “fee” policies which insure the owner and “loan” policies which protect the lender. You should always get both.
Title reports and the process of obtaining title insurance is largely “risk avoidance” protection. Defects are disclosed before you buy and are mostly disposed of so that the risk is eliminated or are known and accepted as “exceptions” to title coverage.
Title insurance is also the only form of insurance that “looks backwards” in time. All other insurance covers future events. The title policy will provide that as of the date of the closing everything that has happened in the past has been examined and is OK and acceptable. If a claim later comes up as to something which occurred before the closing, the policy will cover you and provide a legal defense to the claim.
What are title defects?
Title defects are issues that can affect your ownership rights to a property. They can arise from various sources and may not be immediately apparent. Here are four common title defects:
- Liens and encumbrances: Liens are claims against the property, often due to unpaid debts such as taxes, judgments, prior mortgages or contractor fees (“mechanics’ liens”). If the previous owner had outstanding obligations, creditors might have placed a lien on the property.
- Errors in public records: Mistakes in public records, such as misspelled names or incorrect property descriptions, can create complications. These errors can challenge your ownership rights and require legal action to correct them.
- Unknown heirs: Sometimes, heirs of previous owners can appear unexpectedly, claiming their right to the property. This can lead to disputes and potential legal battles.
- Forgery and fraud: Fraudulent deeds or forged documents can pose significant problems. Even if you purchased the property in good faith, forged documents could undermine your ownership.
How title insurance can help
Title insurance is designed to protect you against various title defects. If a title defect arises, title insurance covers the monetary loss up to the policy amount, saving you from substantial legal fees and other related costs. Additionally, title insurance provides legal defense if someone challenges your ownership. Knowing that you have title insurance allows you to focus on enjoying your new property without worrying about potential legal issues.
Seeking legal guidance is crucial
Purchasing a property is a significant investment and ensuring clear title ownership is crucial. Title insurance offers a safety net, protecting you from common title defects. As you embark on this exciting journey, make sure to include title insurance in your plans. If you encounter title defects, seeking legal guidance can help you manage these issues effectively. With the guidance of an experienced real estate attorney and proper knowledge, you can make informed decisions that ensure the protection of your rights and investment.
