Getting title insurance for your property is a must. A lot of first-time buyers are surprised to find the title insurance charges in their closing documents come closing time. Fortunately, title insurance does not cost that much and it's a real bargain if you ever come to find that your property has a title problem.
Title insurance is an insurance policy that protects a homeowner's claims that they are, indeed, the owner of their property. The title insurer will search through court documents and previous owner records to make certain that there are no other individuals claiming ownership or ownership interest in the property that you are purchasing. If the property's title is clear, then you will proceed to purchase that property and the title insurer will insure that your property will not be faced with outside claims of previous ownership. If someone were to claim that they have ownership interest in that property for any reason, the insurer is responsible for settling that claim. It is rare to ever need to exercise your title insurance, but today's world is a very litigious one. Luckily, title insurance exists to protect you.
Though title insurance is a great thing, as most things legal, it can be incredible complicated. In the article recently written by Amy Hui for RealtorMag entitle, "Title Snafus and You," the author addresses 8 misconceptions that can arise concerning title insurance.
- Title insurance only provides a clear title - Title insurers provide more than insurance that you will have a clear title on your property. Title insurance can also protect the owner against easements, encroachment, zoning, subdividing, and many more depending on their policy's terms. These are known as encumbrances. They are claims of rights/ownership that encumber your rights as the owner.
- Title insurance covers ALL title issues on the property - This is also untrue. There is an area on a title policy referred to as Schedule B. Schedule B is where any known title agreements will be listed. These usually come in the form of easements or other encumbrances. These are essentially agreements that have been made to allow/deny restrictions or rights of use on certain real properties. Often these will be agreements to allow the neighbor's driveway to pass through your land, allow a utility company's meters within your properties boundaries, etc. These are a fact of life and they are much less scary than they sound. Schedule B will disclose all known encumbrances on the property and will usually cover losses from claims involving them.
- Title insurance does not mean that you will have no claims - Title insurance does not guarantee that your property will never have a title issue. Title insurance is like any other insurance policy. Insurance indemnifies the insured from any claims that are made against them. Even then, the insurer will only indemnify the insured of claims that they have agreed to cover, which means that you MUST make your insurer aware of encumbrance if you are aware of encumbrances.
- The title company will fix your issue in escrow before closing - Unfortunately, this is just not true. The title company can't just make a demand and the claimant back off. It doesn't work that way. The title insurer will need time to resolve your title, which can sometimes be a lengthy and legal process. This means that depending on the issue, it could take months to resolve and the property is not likely to close on time. You can always agree to wait it out with the seller/buyer!
- The insurer won't cover a claim that isn't in the agreement - This is also untrue. The insurer can provide assistance in the event that the policy doesn't cover the claim. It is rare, but they do some times help with claims that are not necessarily covered by the policy.
- The title insurer will always clear the title if a claim is presented - Unfortunately, this is similar to number 4. The insurer does not have a magic wand that can automatically clear the title if a claim is made. The have a number of avenues to explore to try to levy the claim. These include trying to fix the issue, taking legal action (e.g. filing a suit against the claimant), settling with the claimant, or settling the insured's losses arising from a claim. These things all take time. In most cases, the title will be cleared, but it takes some time for the process to be completed,
- There is only one policy on a property - In many cases this is true. That is only if the property was paid for in whole by the purchaser or if the lender does not require a policy. In most cases, the mortgage provider will also want a title policy. Their policy is known as a loan policy. The loan policy insures the lender.
- You will only need one policy forever - This is not the case if the financing on property changes or if you decide to change your insurer. Many people refinance their homes in favor of better rates. When this happens, the new lender almost always requires a new policy.
That's all for today! Rachel and I have just recently moved into our new house (that needed a ton of work) and got our old house rented out. We also have a rehab under way on James Island and I'm representing a few people as the buy or sell homes. Needless to say, it's been a very busy few weeks and I was unable to write a post for while. Things are starting to get back to normal and I'll definitely have another coming soon! As always, if you or anyone you know needs help buying or selling a home, let me know! I would be happy to help!
Troy Franklin Gandee