 | Jeff Otto is Branch Manager of Lawyers Title Insurance Corporation which is a member of LandAmerica Financial Group, Inc., a premier national provider of title insurance and settlement services. Lawyers Title has been in the local marketplace since 1955. Jeff has been with Lawyers Title for 34 years, the last 24 right here in Wichita. You may contact Jeff at (316) 682-9600 x 201 or by e-mail at jotto@landam.com |
Real Estate
2007-01-01 14:37:00
How important is title insurance?
How
important is title
insurance to me, a
homebuyer?
ANSWER: At every real restate closing, the buyer is handed an inventory (a HUD-1 settlement statement or its equivalent) of items for which he is being charged. One of the line items will most assuredly be for Title Insurance. This is not your Homeowners or Hazard Insurance policy. But this insurance can be as important or more important as that hazard policy. Almost all lenders require borrowers to purchase lender's title insurance as a condition of a home mortgage. This protects the lender, up to the value of the mortgage, against "defects" in the title to the property. Meaning, those defects that existed before the transaction, but which might have been missed in the title examination. Most titles are thoroughly examined before any transfer of property, and the overwhelming numbers are clear, or require only a slight tweak to make them so. A title exam is not necessarily a legal requirement and you can probably still buy a friend's home with a handshake and a check, then mosey on over to the courthouse and record that deed yourself. In a private real estate transaction, that might still be done, inadvisable as it is. However, if a bank or mortgage company is involved, there will definitely be a title examination. Title law is a very complex branch of the legal system. Land ownership in this country goes back hundreds of years, and along the way there may have been dozens of occasions when something could have occurred to "cloud" its ownership. Records were not always meticulously maintained, deeds and claims were not always correctly recorded. Old land grants and tribal claims still occasionally surface to cause problems hundreds of years later. Now, there are many more contemporaneous defects that can cloud a title.
For example, an incomplete or incorrectly exercised foreclosure or tax taking. Property rights that were not totally extinguished by a divorce or the probate of an estate. A seller, revealed, even years later, to not have actually owned the property. This may result from actual fraud or something as innocent as an expired or improperly executed Power of Attorney, and it happens way more often than one might want to know. Mistakes in recording (or failing to record) earlier documents, such as wills or probate decisions. Liens for unpaid work (mechanics liens) or for estate, income, or gift taxes. Adverse possession, which occurs when someone has openly used a portion of another's property (a path to the beach or an improperly positioned fence) for a period of time without a challenge by the land owner. Previously unnoticed rights-of-way or easements. These give a non-owner (the city, a
utility, a neighbor) the right to use a piece of a property. Cities and utilities often demand or purchase easements to allow construction or repair of utility or sewer lines. A neighbor may have a right-of-way to access a land-locked parcel or construct a driveway. The failure to extinguish a lender's rights. When a mortgage is sold to another lender or paid off by the borrower, an assignment or a discharge must be recorded transferring or canceling the mortgage. One of the real nightmares of the 1980s and 1990s banking crisis were the thousands of mortgages which failed banks had not properly assigned. Without an assignment, the bank which held the mortgage could not discharge it when it was paid. RTC and FDIC, as receivers of those banks, often had no records of the old mortgages and could not know if or to whom they had been sold or whether they had been paid. Clearing these situations was both time consuming and expensive.
Not all of the above instances will be covered by title insurance. First of all, there is usually a time limit (40 or 50 years prior to the current closing is common) during which defects will be covered. Policies almost always cover problems that did not show up during the title examination, were missed by the examiner, or resulted from errors in public records, but they may or may not cover problems with easements, mineral, or air rights, or some liens. Be sure to check the limits of your policy's liability. We'll continue with the importance of Title Insurance next month...
