Market News

by: Robert A. Ballinger, Attorney at Law, Director of Operations, Kings River Title and Abstract

If you have recently purchased or refinanced a home, chances are you have had to get title insurance. What exactly does title insurance cover, and who does it protect, the homeowner or the lender? Do you need title insurance on a refinance if you bought title insurance when you purchased your home? These are important questions we receive on a daily basis and here are some answers, as well as helpful advice on title insurance, and whether or not you need it.

Basically, title insurance protects you against problems affecting the title to real property. There are two types of title insurance—a Loan Policy, and an Owner’s Policy. A Loan Policy protects the lender for the amount of the loan, while the Owner’s Policy protects you, the homeowner, for your investment in the property, your equity. In both cases, the title process covers an exhaustive search of public records to make certain the title to the subject property is clear, and covers against future loss if a claim against the property is made.

While discovering an issue with your title can seem rather remote, one out of every four title searches reveals a problem with the title. Examples include tax liens, forged signatures in the chain of title, recording errors, title search errors, undisclosed easements and title claims by missing heirs and/or ex-spouses. These problems should be uncovered in a title search before you even close on your home.

Even after an exhaustive title search is performed and a title policy issued, sometimes a problem may surface that can threaten your home. If you only have a lender’s policy, where the outstanding loan is covered, your equity is not protected. A separate Owner’s Policy would protect you for as long as you or your heirs have an interest in the property.

With the recent refinance boom that has occurred over the last few years, some homeowners have questioned whether or not they need a new title policy when they refinance. The answer is, you won’t need a new Owner’s Policy, but a lender will require a new Loan Policy because a title search must be performed covering the time since the last policy was issued.

Although somewhat remote, there is the chance that unforeseen problems might exist such as a mechanic’s lien from a contractor who claims he/she has not been paid, or a judgment placed on your house for unpaid taxes. The lender will understandably want to make sure the title to the property they are financing is clear.

In some states, the seller actually pays for Owner’s coverage. Be sure to ask about an Owner’s Policy at the time you obtain a Loan Policy.

Remember, title insurance protects you against the potential loss of your most valuable asset—your home.

Title insurance is little understood by most consumers. In fact, a recent survey by the American Land Title Association revealed that most home buyers think of title insurance as “just another fee” they have to pay to buy a home. They don’t really know what it does, or how it protects them.

A major reason for this is that buying a home has become a rather complex process. There are so many details to take care of that most people rely on the person handling the sale to take care of them—typically their real estate agent. They trust their agent to know the process and do what is required, including ordering services like the appraisal, home inspection, and title work. Since the buyer isn’t directly involved, they may not be knowledgeable about what many of these services entail.

What is Title Insurance?
An Owner’s Policy of title insurance assures that the home you are buying is free of issues that could cloud the title. Prior to issuing the insurance policy and before you close, title professionals conduct an exhaustive search to check for liens, encumbrances, easements, and other problems that could affect the status of the title. If a problem is discovered, title professionals typically take care of it, or notify you so that you can make an informed decision. If a title defect covered under the policy isn’t discovered until after you close, the insurance kicks in to cover your losses.

What are some typical problems that might cloud a title? There may be a lien on the property for unpaid property taxes by the previous owner, or a mechanic’s lien by a subcontractor who performed work on the property and was never paid. Other examples include a prior unpaid mortgage, or covenants and restrictions on the use of the property.

Sometimes there are problems that go undetected during the title search, such as fraud or forgery, a mistake in the public record, or an unknown heir claiming ownership. If this occurs, you would file a claim with your title insurance company.

The truth is, claims are rare in the title insurance business because of the due diligence that is performed before the policy is issued. Most of the premium dollar goes to pay for the upfront costs of performing the title search, and clearing up title issues before you close.

Understand Your Coverage

Title insurance is more than “just another fee”–it provides real protection should something happen to threaten the title to your home. Talk to your title representative to find out what is and isn’t covered in your title insurance policy.

For peace of mind, make sure you fully understand your coverage before you close.