Title Basics > What is Title Insurance?
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Title Insurance Protects Your Homeownership Rights

What is Title Insurance?

Title insurers, unlike property or casualty insurance companies, operate under the theory of risk elimination. Title companies spend a high percentage of their operating income each year collecting, storing, maintaining and analyzing official records for information that affects the title to real property. Their technical experts are trained to identify the rights others may have in your property, such as recorded liens, legal actions, disputed interests, rights of way or other encumbrances on your title. Before closing your transaction, the title company will proceed to “clear” those encumbrances, which you do not wish to assume.
 
This theory is different from most other insurance where, for example, rates and anticipated losses are based on actuarial studies and premiums are pooled on the assumption that a certain number of claims will be made. The distinction is important: Title insurance premiums are paid to identify and eliminate potential risks and claims before they happen. Medical and casualty insurance premiums, for example, are paid to insure against an unpredictable future event, knowing that risks exist and claims will, occur. Furthermore, title insurance involves a one-time premium, paid when you close the real estate transaction, while property, casualty, and medical insurance require renewal premiums.
  
What is a Title Search?
A title search is the process of determining from the public record what the rights are to the land and who owns them. A title search is a means of determining that the person who is selling the property really has the right to sell it, and that the buyer is getting all the rights to the property (title) for which he or she is paying.
 
The search process can be undertaken by NATIC agents in many jurisdictions. In some areas, however, searches are made only by practicing attorneys. Regardless of how the search is performed, in most real estate transactions today, a title insurance policy is purchased to assure the buyer that he or she has purchased a valid title.
 
In those transactions where title insurance is involved, NATIC agents must determine insurability of the title as part of the search process. This leads to the issuance of a title policy, which insures the existence or non-existence of rights to the property.
 
What is Involved in a Title Search?
Chain of Title
The chain to title is a history of the ownership of a particular piece of property, indicating who bought it and sold it, and when. The information may be derived from public records – usually a county clerk’s or recorder’s office – or obtained from title plants privately owned and maintained by title companies.
 
Tax Search
A tax search determines the present status of general real estate taxes against the property. The tax search will reveal if taxes are current or whether any taxes are past due and unpaid from previous years. In addition, the tax search will indicate the existence of any special assessments against the land and, if so, whether or not these assessments are current or past due. A due and unpaid tax or special assessment is a prior lien or claim on the property above all others. Title insurance protects the buyer against loss from unpaid and past due taxes and assessments.
 
Report on Possession
The report on possession supplements the information learned from the title search. In the eyes of the law, any buyer of real estate is assumed to have notice of all matters properly shown in the public records as to that real estate, as well as any information that an actual inspection may reveal.
 
Judgment and Name Search
One of the most important aspects of the title search is to determine if there are any unsatisfied judgments against the seller or previous owners in existence while they owned the title. A judgment is a general lien against the debtor’s real estate and constitutes security for any money owed under the judgment. The real estate can be sold to satisfy the judgment.
 
It is extremely important to be sure that a title is not subject to judgments against the seller or previous owners. Title insurance provides this protection. A judgment against a person named Smith may affect the title of a seller named Smith, depending on whether or not they are the same person. So, all possible variations of the name must be examined. If a judgment is discovered that constitutes a defect in the title, it is pointed out, and the seller must then eliminate it before the title of the new buyer can be insured free and clear of any judgments.
 
Commitment
When these searches have been completed, the underwriter issues a commitment to insure, stating the conditions under which it will insure the title. The buyer and seller and the mortgage lender can proceed with the closing of the transaction after clearing up any defects in the title, which may have been uncovered by the search and examination.
 
How Title Insurance Protects You
The goal of title companies is to conduct such a thorough search and evaluation of public records that no claims will ever arise. Of course, this is impossible – we live in an imperfect world, where human error and changing legal interpretations make 100 percent risk elimination impossible. When claims arise, professional claims personnel are assigned to handle them according to the terms of the title insurance policy. Title insurance reimburses you for the amount of your covered losses as defined in the policy and will provide defense against wrongful claims against your title. Here are some situations for which your title insurance would provide protection:
 
  •  Forged deeds, mortgages, satisfactions or releases of mortgages, and other instruments
  •  Impersonation of the true owners of the land by fraudulent persons
  •  Outstanding prescriptive rights not of record and not disclosed
  •  Liens from unpaid estate, inheritance, income and gift taxes
  •  Inaccurate or incomplete legal descriptions
  •  Mistakes in recording legal documents
  •  Special assessments that become liens upon passage of resolution and before recordation or commencement of    improvements for which assessed
  •  Recorded easement, where the actual access path does not follow route described in the granted easement
  •  Fraud, duress or coercion in securing essential signatures
  •  Invalid, suppressed, undisclosed and erroneous interpretation of wills