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Why is title insurance important for a buyer?

Title insurance can protect a buyer against title defects that may occur from a covered risk. There are a number of problems that can arise and may result in the complete or partial loss of real estate. Even the most careful search of the public records may not find every title problem. Since some problems are hidden, your title may appear to be perfect when there may actually be a title issue waiting to surface. With owner’s title insurance, a title insurer will defend you against an attack on the title to your property as insured. If this attack is successful, the title insurer will indemnify you against the loss up to the policy limit.

What is the difference between title insurance and other types of insurance?

Most insurance covers tangible items and title insurance covers against loss or damage resulting from defects or failure of title on a particular piece of real property.

Also, the premium for title insurance is only paid once when the policy goes into effect. With other types of insurance, premiums are paid in installments until the policy is cancelled.

What is a Title Commitment?

A title commitment is a report issued by a title insurance company or its agent. The title commitment describes the property and sets forth the record title owner. Schedule B-I of the title commitment lists title requirements which must be satisfied prior to closing. These requirements may include payoff of liens or judgments and any necessary corrective deeds or other documents. Schedule B-II of the title commitment lists certain exceptions such as easements, oil and gas leases, restrictive covenants and future property taxes.

What is a title policy?

A title policy is issued upon the finalization of the transaction. It consists of Schedules A and B. The two schedules list the information as referenced on the title commitment and any matters effecting changes to the title at closing. The title policy itself is a contract between the insured and the underwriter insuring against loss in the event a defect in the title is discovered. The two policies which may be issued are an Owner’s Title Policy and a Mortgagee Title Policy.

The insured in an Owner’s Title Policy is the owner as shown on the recorded deed. It insures the owner of the property against defects in the title subject to any exceptions listed in Schedule B.

A Mortgagee Title Policy insures a lender against loss caused by invalid title in the borrower, or loss of priority of the lender’s mortgage subject to any exceptions listed in the policy.

What are some common title defects?

This list will give you an idea of the types of title problems which may occur:

  • Defective notarial acknowledgments.
  • Deeds by minors.
  • Inadequate legal descriptions.
  • Easements established through continued use but not discovered by a survey or in the public record.
  • Mistakes in recording legal documents.
  • Mistaken reports furnished from taxing authorities.
  • Misinterpretation of wills.
  • Errors in tax records. (For example, listing payment against wrong property account.)
  • Falsification of records.
  • Deeds to or from defunct corporations.
  • Marital rights of spouse allegedly, but not legally, divorced.
  • Liens or judgments on the property
  • Unresolved code violations