A title is the evidence or right, a person has to the ownership and possession of land. A defect in the title can be any legal right held by someone other than the owner to claim property or make demands on the owner of that property.
When purchasing a home, instead of purchasing the actual building or land, you actually are purchasing the title to the property. After you buy a home, you are given a title to the property which gives you full legal ownership. But…sometimes there can be a defect in title or a hidden mistake in a prior deed, will, mortgage, etc., that may give someone else a valid legal claim against your property. In short, title insurance is protection against loss if a covered defect is found in your title.
It protects all the parties involved in the real estate transaction. It protects against previous mistakes and defects. For example: forgeries on deeds, typographical errors, pending legal actions against the property, claims by previous undisclosed relative of a former owner, outstanding judgments or liens, easements, etc. Having title insurance can save you money, time, trouble…and even from losing your home!
There are two types of title insurance policies. The first, a “Loan Policy” or “Lenders Policy,” protects the Lender and covers the outstanding balance on the mortgage, but it does not protect you as the homeowner. The second type, is called an “Owner’s Policy,” which is always a good idea to purchase when acquiring property. This covers you as the Buyer. An owner’s policy insures that the title to the property is free from defects (liens and encumbrances), except those which are listed as exceptions in the policy. It will give you peace of mind and maximum protection in case there is a claim against your home.
Depending on your policy, coverage typically protects against certain “hidden risks” like these:
1) Errors – For example, incorrect information in deeds, wills, trusts, mortgages, public records, or forgeries
2) Liens or judgments against the property- For example, claims against the property or the seller that become the new owner’s responsibility after the sale, including unpaid mortgages, taxes, sewer and water assessments, bills owed to contractors or other creditors, etc.
3) Claims to ownership – For example, a claim to “marital interest” by the spouse or child of a former owner who was not mentioned in the previous owner’s will
4 ) Invalid Deeds – For example, transfer by a previous seller who did not actually own the property or by a previous owner who was not mentally competent.
5) Lack of Access – For example, if you would have to cross a private road to get to your property and the owner of the road won’t allow you to do so.
These may not be covered by your title insurance policy.
Standard Exclusions/Exceptions – Often appear as part of the printed form. For Example: limitations on land use, such as laws against farm animals and mechanic’s liens, such as unpaid construction or repair bills.
May be written into your policy based on defects found in the title search. For example: easements, rights of way, and other legal obligations noted in the deed or public records, “Restrictive covenants,” agreements limiting certain types of use for your property.