Title provides evidence of an owner's right to possess and use property, including undeveloped land. If there are defects in the title to a property, and there can be many, they can cause the buyer to lose some or even all of the investment. If you are purchasing land, title insurance is a policy that protects you against hidden hazards that can result in a claim against ownership.
Purpose of Title Insurance
Title insurance is different from other kinds of insurance. Its sole purpose is to prevent losses and eliminate risks that can be caused by defects in a property title, defects that occurred in the past. The title insurance company examines risks and mitigates them before the deal closes and the land changes hands.
Land buyers may mistakenly believe that a deed is proof positive of ownership. A deed is only a document through which ownership rights in land are transferred. A deed does not eliminate any rights that other individuals or entities have in the property. Title to the property can be clouded with claims and liens. Title insurance protects the buyer's interest in the property he is purchasing.
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What a Title Search Reveals
When you request or accept the offer to purchase title insurance, the title insurance company goes to work, performing a deep and thorough search of public records, including relevant data the title company has gathered and indexed, that are related to the property. Usually, with an exhaustive search, any problems with the land title can be uncovered and resolved before the purchase is completed. However, sometimes not everything gets revealed.
What May Remain Hidden
Owners of the land, over time, may have obtained rights to the air above it, the minerals below it and the utilities that run through it. If those rights are not in public records and/or are disputed, they may elude the search. There can be liens against land, or other restrictions or encumbrances such as unpaid taxes or an unpaid mortgage. A judgment may exist against the seller. A previous owner may not have disclosed a marriage and a legitimate claim against the property may arise from a legal spouse. An undisclosed heir to the land may surface and want his share. Clerical errors could have occurred. Someone may have sold property fraudulently and forged documents.
The Type of Title Insurance Owners Need
Generally there are two types of title insurance. One is called lender's title insurance. It protects the lending institution that may provide a loan with the property as collateral. The type the buyer needs is known as owner's title insurance. The insurance is commonly issued in an amount that matches the purchase amount for a one-time fee at the close of the sale. It usually lasts for as long the buyer or his heirs maintain an interest in the property. It gives you, the buyer, an assurance that the title insurance company will pay any claims against the property title and will even pay for legal defense if necessary should a covered title claim arise in the future. The coverage protects your financial interest in the land purchase even generations into the future.