One of the questions we are often asked is "Why do we need title insurance? After all we are paying the attorney to examine and guarantee title to the property we are purchasing.
To many buyers it appears that title insurance is another add-on cost that gets slipped in at closing to make extra fees at the buyer's expense?
Let's take a look at what title insurance is and then we will list some of the reasons why we always buy it when purchasing real estate
Title insurance takes over where the attorney's liability stops. Keep in mind that an attorney's title opinion is based solely on the public records. Among many other things, they must rely on the fact that the previously prepared documents in the chain of title were executed properly and were in fact executed by the persons named within. Because your attorney was not there when these events took place, it must be assumed that everyone told the truth and took no liberties whatsoever with insuring that the execution process was carried out in a proper manner.
Keep in mind that anyone can prepare a deed, have it witnessed and notarized, then recorded in the public records. Problems may not emerge until many years after you buy the property, and should a problem occur, the resulting claims and financial losses can be disastrous. Here are a few of the things that could surface later that would not be revealed during a normal examination. (Consequently, your attorney would bear no responsibility for any losses you incur as a result of claims made against your property.)
- Claims by previously undisclosed heirs
- Claims by children born or even adopted after the date of the will
- Deeds by minors, aliens, or persons of unsound mind
- Administration of estates of persons absent, but not deceased
- Claims of creditors against real estate sold by heirs
- Forged deeds, mortgage satisfactions, or affidavits
- Mistakes in the public records
- Fraudulent acts or omissions
- Misinterpretations of wills
- Inaccurate descriptions of property
- Your attorney dies, moves away, is disbarred, insolvent, bankrupt or for whatever reason is unable to defend or indemnify you against a claim
Title insurance is a one time purchase and there are no annual premiums. Two types of title insurance are generally used in typical sales
An "owner's" title insurance policy is usually for the amount of the purchase price, while a "lender's" policy is for only the amount of the mortgage and consequently decreases as the mortgage is reduced. It is wise to pay for the additional owner's title policy even when a lender is not involved. With this coverage, the title insurance company will defend you against claims up to the entire amount of your purchase and will continue to protect you and your heirs as long as you continue to hold title. The bank or "lender" is only concerned with protection in an amount necessary to cover the loan balance.
TITLE INSURANCE BINDERS
All lenders will require that your attorney provide a "binder" at closing that gives the lender written proof that the title insurance company has agreed to provide the requested coverage. Unless you request otherwise, the attorney will probably include a binder, at a charge of $75.00 to $150.00, even when no lender is involved. Ask your attorney if it is really necessary that you be charged for a binder under these circumstances.
The above is intended for informational use only and is not to be relied upon in lieu of an attorney. Liability arising out
of use or reliance upon the above opinion, to anyone relying upon same, is expressly disclaimed.