What Is Title?
Title is a collective term that makes up your legal rights to own, possess, use, control and dispose of land. Title takes into account all previous ownership, uses and transfers. In order to legally transfer real estate property, a title search must be performed, and in most cases the title must be determined as clear or free of defects or encumbrances.
What Is Title Insurance?
Title insurance is an insurance policy that protects your legal rights to own, possess, use, control and dispose of land. Title insurance insures against events that happened in the past that affect title to the property. Other types of insurance protect against events in the future.
Types of Title Insurance:
There are many different types of title insurance policies. The two standard policies are:
- Lender's Title Policy: The lender's title policy is required for a mortgage, and financially covers the amount of the mortgage and provides protection to the lender.
- Owner's Title Policy: The owner's title policy protects the landowner against any title loss and insures the value of the property and generally is considered optional.
Amounts of Coverage:
- Lender's Title Policy: The lender's title policy is issued in the full amount of the mortgage on the premises being insured.
- Owner's Title Policy: The owner's title policy is usually issued in the amount of the current sales price, however, it may be issued for a higher amount when agreed upon by the title insurer.
How Does A Title Company Determine If It Will Insure The Property?
Before issuing a title policy a search is performed of county real property records. This search is a detailed examination of the historical records concerning the property including deeds, civil, and probate court record, tax records, etc. The purpose of the title search is to verify the seller's right to transfer ownership and to discover any claims, errors, assessments, debts, or other issues affecting title to the property.
The title searcher then prepares an "abstract", or a condensed legal history of all transactions affecting the property.
Based on the abstract, the title company usually issues a "Commitment to Insure" (also called a "binder"). This is a summary of the condition of the title, including title defects, liens, etc and is an agreement to issue a title insurance policy upon payment of the premium.
Won't A Title Search Keep Problems From Arising?
Even the most careful search of public records will not find every little problem. Because some problems are hidden, your title may appear to be perfect but there may be hidden defects which may affect clear title to your property such as:
- False Representation
- Lost Wills
- Mistakes in Descriptions
- Undisclosed Heirs
- Clerical Errors
- Illegal Trusts
What Risks Are Covered?
Coverage typically protects against various "hidden risks" or problems that might not be discovered in a routine title search, such as:
- Errors - incorrect information in deeds, mortgages, public records, etc., such as wrong names.
- Liens - claims against the property or the seller which become the new owner's responsibility after the sale. Examples are unpaid mortgages, taxes, sewer, and water assessments; bills owed to workers and other creditors, etc.
- Claims to Ownership - for instance, a claim to "marital interest" by the spouse of a former owner or by a child of a former owner who was not mentioned in his or her parents' wills.
- 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.
Can A Deed Serve As Proof Of Ownership?
No. A deed is just a document used to show transfer of ownership and is evidence only that you have taken over whatever rights the seller had in the property. A deed does not eliminate the rights others may have, and a deed won't show you liens or claims that may be outstanding against the title.
How Long Does Title Insurance Coverage Last?
The lender's policy of title insurance lasts until the mortgage is paid in full. An owner's policy of title insurance lasts for as long as you or your heirs retain an interest in the property.
Can I Afford Title Insurance?
Can you really afford not to purchase title insurance? Title insurance probably costs a lot less than you think. You pay for an owner's policy of title insurance only once, and there are no monthly premiums or annual renewals. Compared to the cost of loss, the expense of the premium is a bargain.
The Pennsylvania Department of Insurance mandates title insurance rates. Please call or e-mail for a quote.
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