Now that we have our inspections,
appraisal and repair negotiations complete, we have a few weeks
before closing. This would be a good time to stop off and learn
a bit about Title Insurance.
Simply explained, “title” is the
right to own, possess, use, control, and dispose of property.
When you buy a home, you are actually buying the seller’s
title to the home. A deed is the written legal evidence that the
seller has conveyed his or her ownership rights to you. Before
the closing meeting when the actual transfer of ownership occurs,
an attorney or title specialist generally conducts a title examination.
The purpose of the title examination is to discover any problems
that might prevent you from getting clear title to the home. Generally,
title problems can be cleared up before settlement. But in some
cases, severe title problems can delay settlement, or even cause
you to consider voiding your contract with the seller.
Title problems come in all shapes and sizes.
Following are just a few examples of situations that can create
a title problem:
- The home to be purchased was owned by the
seller’s parents, who intended to use it for their retirement.
The seller’s father died several years ago, and the mother
just recently passed away. A title search reveals that the property
is titled in the mother’s name, but there is no will on
file to indicate how she disposed of it.
- You are buying a house to which an addition
was made several years ago. The sellers of the home took out
a home improvement loan and did the work themselves. They have
repaid the loan, but the lien was never removed from the title.
- The seller of the house added central air
conditioning several years ago. The seller and the contractor
had a dispute over the workmanship, and the seller withheld
the final payment on the contract. The contractor filed a mechanic’s
lien on the property, which has never been removed.
- You are buying a house with a newly paved
driveway. The seller of the house bought his neighbor’s
share of their shared driveway and converted it into a private
driveway when the neighbor built a new driveway on the other
side of his house. Unfortunately, ownership of the expanded
driveway doesn’t appear in the public records.
Some “clouds on title” can be corrected
relatively easily, like most of the examples listed above, while
others can become quite complicated to remove. You should insist
on being kept informed of every step in the title examination
process. If title problems are uncovered, it is important for
you to understand your legal rights.
Title insurance is the best way to protect
yourself against title defects that have occurred in the past,
which may not appear until after you’ve taken ownership
of the property. Before a title insurance policy is issued, a
title report is prepared based on a search of the public records.
This report gives a description of the property, along with any
title defects, liens, or encumbrances discovered in the course
of the title search. Title insurance protects you against title
defects that were not discovered in the course of the title search
(for example, forged signatures). If such a defect were discovered
later, your title insurance would cover you. Title insurance is
different than casualty insurance (auto, life, health) in that
you pay a one-time fee (which can vary from state to state as
well as between insurance companies) and that it protects against
past (as opposed to future) events.
If title problems are severe enough and not
covered by insurance, you could actually lose your house. A title
insurance policy protects you and your heirs against title defects
for as long as you own the property. The policy represents the
title insurance company’s responsibility to compensate you
for any covered loss caused by a defect in the title, or any lien
or encumbrance that was not discovered in the title search. Most
title insurance policies do have exceptions, however, so it is
important to read and understand the policy. Be sure to call the
title company if you have any questions about what is covered
in your particular policy.
For more information visit the LandAmerica
Web site.
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