Title Insurance is a bridge that you will have to cross in any transaction involving real estate. However, without any legal knowledge of what a title is, and what can go wrong with it, the world of title insurance can be confusing. This article should bring you up to speed. We’ll start with the basics.
WHAT IS A REAL ESTATE TITLE?
The title to a property is proof that you own that property. The term “title” is synonymous with “deed.” These terms are used interchangeably. In its physical form, a title is a document. This document represents and outlines a bundle of individual rights – and restrictions – the sum of which comprise legal ownership of a property.
OWNERSHIP VS. POSSESSION Before going any further, it’s important to note that there is a legal difference between owning property and possessing property. These are distinct concepts, each of which can be transferred separately. Perhaps the best way to illustrate the difference is the example of renting an apartment. If you are renting an apartment, then you have legal possession of it. However, the actual ownership of that apartment belongs to your landlord. This is a key difference in the world of property law.
TITLE SEARCH Before a real estate deal can be finished, your real estate attorney needs to perform what is called a title search. They do this to ensure that there are no other legal claims on the property (called liens). If their search reveals no liens or other defects, then the title is “clean.” However, even if you have a “clean title,” you still need to get title insurance.
TITLE INSURANCE + WHAT IT PROTECTS AGAINST
Title insurance protects you from anything that might go wrong with your title later on down the line. Most mortgage lenders require it, but that insurance only covers the lender’s interest. You will also need a policy that protects you. How does title insurance protect you? This depends on the situation. Let’s first look at some of the more likely possibilities for what can go wrong with your title:
Although it is rare, there have been cases where the person transferring a deed wasn’t really the owner of the property. Or maybe there was a previous sale where the seller had no right to convey the property. Fraud from the past can cast doubts on the legitimacy of title in the present. If this sort of issue is not discovered before you purchase the property, your right to ownership may be threatened. Title insurance protects against this type of risk.
Forgery is a subcategory under the “fraud” umbrella. Forgery basically means that somebody is passing off a fake document as being genuine, or they have forged the name of a co-owner without their knowledge or permission. Your title may seem legitimate, but if even one tiny detail has been forged, the validity of the entire document will be called into question. Any sort of flaw in the chain of title throughout the history of the property may become a problem for you today. Your title insurance covers this type of risk as well.
3. Capacity, Legal Authority, Spousal Claims
Title insurance covers errors that arise where the person transferring the deed did not have the legal authority to do so, or to do so alone. For example, when a married couple buys a property, the title will often specify that they are joint owners. If the couple gets divorced later, neither of them alone has the right to sell the property, but this does not always stop one of them from trying. Or perhaps you bought the property from a business, but one of the owners did not consent to the sale. In situations like these, your deed may be invalid. Title insurance covers these kinds of risks too.
4. Erroneous Property Description It is critical that your deed accurately describe every aspect of the property, including the correct street address, boundaries, and encroachments, among other things. If the deed contains any errors, there could be challenges to your ownership down the road. Title insurance protects you from these risks.
HOW DOES TITLE INSURANCE PROTECT YOU FROM ALL OF THIS?
Every policy is different, but generally title insurance will cover the following:
1. Making sure you have a “clean title” 2. Defending you in court, and 3. Reimbursing you for the value of the property if you lose the case
Again, remember that every insurance policy is different. It is very important that you know exactly what your title insurance covers, and that you will be protected in the event that it is later determined that there is a problem with your deed.
At Rochford Law & Real Estate Title, you can receive the coordinated services of both your real estate lawyer and your title agency under one roof. Call (615) 269-7676 to begin to streamline this process today.