Title Insurance

Why do you need it?

 

Title insurance affords protection from past events which may or may not be part of the public records, but that can adversely affect an owner’s interest in real property.

Title insurance also protects against matters of public record, plus hidden title defects, such as fraud, forgery, incompetency or missing heirs, that even the most diligent title search may not discover.

Also, a title insurance premium is paid only once. Most title insurers offer an inflation protection rider that insures the owner’s equity up to 150% of the original purchase price.

 

Title Search

Examining the title.

 

Title to property evolves over a period of time with each recorded document becoming a permanent part of the chain or history of a title. The history is created, in part, by a series of instruments being recorded in the land records of the jurisdiction in which the property is located. A deed is a written document that creates an interest in property. When recorded, the deed puts the world on notice of the estate or ownership thereby created. While a deed shows evidence of ownership of an interest in property, it is not a complete history of the title to the property it conveys.

To learn the history of a property and see how it may affect the current ownership, it is necessary to conduct a thorough examination of the title. The first step in examining a title is to have a title abstract prepared.

Abstracting is the process of establishing a chain of title to a property by locating the deed of the current owner and then researching backward and forward in time through the land records to determine what, if any limitations there may be to the ownership, use and enjoyment of the property. In conjunction with a search of the land records, the abstractor also reviews court dockets to determine if any of the prior or current owners of the property were involved in legal proceedings that could affect title to future owners. In addition to the land and court records, assessment records must also be checked to find out the status of taxes and other municipal fees that can be levied against property.

Today, most lenders require that improved properties be surveyed. Typically, the lender requires a “location” survey as a means of verifying that everything evaluated by the appraiser is within the boundary lines of the property, and that none of the improvements violate building setback lines or easement areas. In addition to the location of improvements, the survey is a means of determining physical encumbrances that are not recorded. The remarking or staking of property lines is not part of a “location” survey; thus, if a purchaser wants to have the boundary lines marked, a boundary survey would be necessary.

Once an abstract is completed, it is submitted to a title examiner for review. The examiner reviews all of the documents reported by the abstractor to evaluate their legal sufficiency and whether or not they still affect current and/or future owners of the property. The examiner then reports the findings in a summary format that outlines what limitations may apply and what remedial steps may be necessary before the owner can convey marketable title. Such remedial steps range from the payment of taxes to the filing of a court suit to quiet title. Based on this final report, the settlement agent prepares a title insurance binder, which outlines the scope and limitations of the title insurance coverage.

In addition to deeds, the documents most frequently found in a title abstract are:

 

Mortgage/Deed of Trust

Documents that show the existence of a debt that is secured by the property.

 

Restrictive Covenants

Documents that impose limitations on the use and enjoyment of property. Covenants are “private” controls on land use. Through the use of such restrictions, developers are able to assure prospective purchasers of residential property that other lots in the community will be similarly limited in use. While covenants impose a burden on the ownership of the property, they also provide the benefit of enhancing the value of land. Although land may be subject to “public” controls such as zoning regulations, not all land is subject to “private” restrictive covenants.

 

Easements/Rights of Way

Documents whereby an owner of land grants to a non-owner the right to enter or cross the land for specified purposes. Often such agreements involve utility companies and allow them access to property to install and maintain equipment.

 

Subdivision Plats

Plats which subdivide tracts of land into separate building lots. Once recorded, a plat becomes a permanent source for determining the identification and description of the property shown thereon. Not all properties are part of a subdivision.

 

How Title May Be Held

 

Although deeds show the ownership of an estate in property, questions can arise as to how the interests of multiple owners relate to one another. One individual may simply own a property outright. If there is more than one owner, the relationship between the individuals must be recited in the deed to properly establish the estates of the owners. The ways that individuals may hold title to real property are:

 

Tenant in Severalty

Ownership by one person.

 

Tenant in Common

Two or more individuals receive title with each person owning an interest in the property. Unless the deed specifies otherwise, each individual has an equal interest in the property. Upon the death of a tenant in common, the deceased’s interest in the property passes to his or her estate.

 

Joint Tenants

Two or more individuals receive title with each one receiving an equal ownership interest in the property. Upon the death of any joint tenant, his or her interest passes to the surviving joint tenant(s), with each surviving joint tenant receiving an equal share of the deceased joint tenant’s interest.

 

Tenants by the Entireties

This form of title can only be held by a couple who is legally married at the time the property is conveyed. Like joint tenancy, this type of ownership has the right of survivorship. That is, if one spouse dies, title to the entire estate passes to the survivor.