Title insurance is unique in the insurance industry. Where all other forms of insurance insure against a FUTURE event, title insurance protects against events that occurred in the PAST. This is why you pay continuing premiums for other insurance policies, but pay for title insurance only once, at the close of the transaction.
THE TITLE EXAMINATION:
Just as a life insurance company may ask you to undergo a medical examination before issuing its policy, title companies conduct an examination of the public records before insuring a lender or buyer.
It is the title company’s job to verify that the seller owns the property, and to uncover any liens on the property. To that end, the examiner reviews the “chain of title”- – – a chronological history of documents recorded against the property. The examiner also looks for any judgments recorded against the names of the parties to the transaction.
WHAT THE TITLE POLICY INSURES AGAINST:
Naturally, a title policy will insure against errors or omissions in the title examination. More importantly, however, the policy will protect the insured against some things that not even a thorough examination of public records could uncover.
Recording a document is the way the parties to the instrument notify the public that the document exists. However, a document does not necessarily have to be recorded to be valid. Unrecorded documents can be financially disastrous for a homeowner.
As an example, Mr. Smith sells his property to me and gives me a deed, which I do not record. I own the property- – – I just haven’t made the public aware of that fact.
Later, Mr. Smith sells that same property to Mr. and Mrs. Brown. Later still, I make a claim that *I* own the property since MY deed is dated prior to the Browns’ deed.
Absent title insurance, the Browns must hire and pay for an attorney to fight me in court. Chances are good that the Browns will lose.
Although a title examination would not have revealed my unrecorded- – – but nonetheless valid – – – deed, if the Browns had title insurance, the title company would have paid for all legal expenses in defending the title. Had the Browns lost the case, the title company would have reimbursed them, up to the amount of the sale price.
Forgery and Fraud:
1. A lender closes a loan and later discovers that the signatures on the documents are forgeries, rendering the loan invalid and forcing the lender to release the property from the lien.
2. Mr. Jones buys a house from Mrs. White. Months later, he discovers that the deed to his home is invalid because the person who sold the property to Mrs. White did not own the property.
While the names have been changed, both of these incidents actually occurred. Fortunately, in both instances the parties held title policies and were reimbursed for their losses.
A real estate transaction may well be the largest investment you ever make. Protect your investment by having the title examined and insured.