Title Insurance covers what could have already happened - not what may happen in the future.

Our newsletter a couple months ago on Closing Costs generated some great feedback, comments, and questions, so I'm expanding on that theme today.

In most states (including Florida), an Owner's Title Insurance policy is NOT required by law, yet is recommended to protect owners' property rights. When the buyer is using financing, all lenders require a Lender's Title Insurance policy to be in place.

Unlike auto or homeowners hazard insurance, title insurance coverage ends on the day it is issued, extends backward in time, and lasts until the property is sold.

And because it's so misunderstood, many buyers look at it as just another vague (and possibly unnecessary) expense they have to pay at the closing table.

Owning real estate is about the rights an owner may exercise concerning the use, occupancy, and disposition of a property. These rights are transferred each time the property is sold to a new owner.

Title is a general concept that expresses ownership.

It refers to an understanding and acceptance of owners' rights.

A Deed is the written document that specifically

describes and acknowledges that ownership.

Deeds are recorded in the county where the property is located.

Depending on a property's location and use, the history of owners may go back hundreds of years. This is especially true in older US cities and towns that may have been founded, settled, and originally surveyed in the 1700s or 1800s.

Title Insurance protects the current owner from losses brought on by claims against his/her rights that weren't known when the property was purchased and the seller's right and ability to transfer ownership were investigated and evaluated.

Claims against title might result from:

- Incorrect boundaries from an improper survey

- Buildings encroaching on easements and/or lot lines

- Unpaid tax liens or unsatisfied mortgages

- Homestead rights under state law

- Errors or omissions in identifying the property or owners

- Previous owner's spouse, ex-spouse, heirs making claim

- Earlier seller fraudulently selling to multiple buyers

- Outstanding judgment against owner attached to property

- Liens filed seeking payment for property repairs or services

Adverse claims against property rights can be brought for any reason - some valid, some frivolous, some fraudulent.

Title companies and closing attorneys' offices try to find any of these attachments, liens, and title defects through a Title Search performed prior to closing.

In a Title Search, earlier recorded deeds, court records,

property indexes, and other sources of information are closely examined to reveal any possible defects, encumbrances, and restrictions that attached to the property over the years.

Any of these could prevent the current owner from legally and freely selling the property. They could also limit the anticipated use of the property by a new owner.

The history of previous consecutive owners and transfers is known as the "chain of title". Lenders usually want at least a 2-year chain of title in the file before issuing final closing documents.

Once the title company or closing attorney's office is satisfied that a property has "clear title", a Title Insurance policy can be issued which protects the new owner from the complications we just mentioned.

So if title agents and attorneys have already checked
for title defects, why is insurance needed?

Because even with a careful and diligent Title Search, there can be hidden hazards from the past affecting the new owner's property rights in the future.

Such hidden hazards may include:

         - Forged documents and other types of fraud
         - Mentally incompetent owner / seller
         - Clerical data entry error

- Inaccurate deed description; deed transfer issues
- Undeclared marital status

- Similar or identical owner names (including Sr, Jr)
- Probate issues and undisclosed heirs

The Title Insurance policy begins on the issue date, though the coverage period ends at the same time.

It protects the buyer from claims against his or her property rights (like the ones we just discussed) extending back through the previous owners and ownership transfers (chain of title).

An Owner's Title Insurance policy does NOT protect current owners from encumbrances that attach to the property during their own period of ownership.

It protects against future claims resulting

from the actions of previous owners.

A claim against ownership can result in lawsuits, liens, inability to sell or refinance the property, and even an owner losing title to the property in favor of the claimant.

An Owner's (buyer's) Title Insurance policy is for the full value of the real estate purchase and lasts as long as the current insured owners or their heirs have an uninterrupted ownership interest in the property.

If a claim against ownership arises, the title insurance company is there to address any valid claims based on issues not found and addressed in the Title Search, and to cover the costs of defending the current owner's (policy holder's) property rights against those claims.

Title Insurance premiums are a one-time, single payment

made at closing.

Local practice and contract negotiation determine

whether the seller or buyer pays the new owner's

title insurance premium at closing.

When there is mortgage financing on the purchase, lenders also want to be protected from adverse claims to ownership, so they require a separate Lender's Title Insurance policy as part of their risk management. The lender's policy is usually a nominal additional premium if written along with the owner's policy, and it has slightly different coverage amounts and terms.

A lender's title policy is in the amount of the mortgage loan, not the total purchase value, and the coverage amount decreases each year as the loan principal is paid down.

When the loan is paid in full, the lender's policy is no longer needed so it expires, while the owner's policy continues until the property is sold.

If the current owner refinances, the owner's policy usually continues in force, and a new lender's policy is started.

There we are - a brief and general overview of Title Insurance and its place in a real estate deal.

For more detailed information -

speak with a licensed title agent or settlement attorney.

Title companies and settlement attorneys fill the role of manager and conductor (sometimes circus ringmaster) of the closing process. They bring together both sides of the transaction along with insurance, tax, and lending components, and somehow it all seems to work out.

Give your buyers and sellers the quick version of what we've discussed today so they know what Title Insurance is when they see it mentioned in the contract.

Well-informed buyers, sellers, (and Realtors�) make for more relaxed and efficient negotiations and closings.