title insurance policies have been put in place to protect
real estate investments against losses that can occur when
you discover after closing that someone else can claim ownership
of the property. While a title examination can uncover most
potential threats, a title insurance policy can go a long
way to ensure the security of your real estate asset.
What is a Title Examination
Also commonly known as a title search, the title examination is a close examination of all public records that involve title to the real estate you are purchasing. It helps to uncover potential problems or defects in the title. While doing a title search, the title officer typically looks at all past deeds, wills, and trusts to make sure the title has passed correctly to each new owner. The title officer also tries to verify that all prior mortgages, judgments, and other liens have been paid in full.
Title Insurance Coverage
Even if the title property looks good, title insurance can offer significant protection, especially if the rights of a previous owner were overlooked during your title examination. The policy covers problems that did not show up during the title search or were missed by the examiner and/or possible errors in the public records. If problems arise after the closing, the policy will pay the legal fees if the policy holder decides to go to court to defend the deed. Also, if the property is lost, the insurance pays the policy holder for the loss up to the amount of the policy.
There are certain items not covered by title insurance, and a policy owner must be well aware of these. Remember that a title insurance policy does not cover defects that occur after purchase of the property. Also these policies often exclude problems having to do with easements, minerals, air rights, and liens. Various other items may also not be covered in the policy; so you must remember to ask for an explanation of all exclusions, and a recommendation as to which items should be cleared up prior to closing.
Title insurance need not be purchased if the buyer is paying cash for the property. On the other hand, if the prospective buyer is obtaining a mortgage, a policy will be required by the lender to cover its interests. You may or may not require buying a policy for your own protection. Usually the buyer needs to pay for the title insurance policy, unless and until the state requires the seller to pay.