Providing Peace Of Mind For The Largest Purchase You’ll Likely To Make
Purchasing a home is probably the single biggest investment you will ever make. Before closing on the house, you’ll want to know that no other individual or entity has a right, lien or claim to the property. Determining that your rights and interests to the property are clear is the business of a title insurance company.
For a modest, one-time title insurance premium, you will receive continuous title insurance protection in an amount equal to the purchase price of the property or its current market value. The policy not only protects you as the buyer, but also your heirs as long as they hold title, and even after the property is sold. It should be noted that coverage continues for your heirs after your death. The title company will not only satisfy any valid claim made against your title, but will pay the costs and legal expenses of defending against a title claim.
When a home is purchased with a mortgage there are two title policies issued, the “owners” policy and the “lenders” policy. The seller of the home will typically pay for the “owner’s” policy which guarantees clear title to the buyer. The “lender’s” policy is paid for by the buyer and guarantees clear title to your mortgage lender. Why two policies? There are different endorsements and different indemnification requirements.
One of the great advantages of title insurance is that prior to a policy being issued, the title insurance company completes extensive research into relevant public records, maps and documents to trace ownership of the property and determine if anyone other than you has an interest. Through its research, the title insurance company can usually identify any title problems that may arise and have these problems resolved prior to closing.
Your title policy will describe the property and outline any recorded limitations on your ownership. It will also set forth the title company’s responsibilities should any claim covered by the policy terms arise. Generally, if someone files a lawsuit to contest your title, the title insurance company will defend the title at no expense to you, or if there is a title defect that cannot be eliminated, the title insurance company will protect you from financial loss – up to the amount of the policy.
Okay, enough of the legal gobbledygook. Let’s consider how title insurance benefits homebuyers in a practical sense. Assume you live in Oceanside, California. Your neighbor is a Captain in the US Marine Corps and she’s currently deployed in Afghanistan. While deployed, her husband puts the home they jointly own on the market. You ask why they’re selling and he explains that when his wife returns she’ll be stationed in Quantico, Virginia, so they’ve decided to sell now and he’ll relocate to Virginia where she’ll meet him when she returns to the states. Although the home needs work it would be a great investment opportunity, and it’s priced accordingly. You make an offer, which your neighbor accepts, signing all paperwork on behalf of his wife with a Power of Attorney. After the transaction closes you rehab the home and lease it to your daughter and son-in-law.
Eight months later the wife returns from Afghanistan, pulls into the driveway and attempts to open the door with her set of keys. Your daughter hears someone jingling keys at the front door looks through the peephole. She recognizes the prior owner and opens the door. She then informs the prior owner that the house was sold and your daughter’s family now occupies the place as tenants. The prior owner is shocked —and livid! She knows nothing about this, asserts that she and her husband never discussed selling the home, and she never executed a Power of Attorney giving him authority to do so. Eventually you find out the Power of Attorney was forged (the husband paid another woman to impersonate his wife and appear before the Notary Public with a fake driver’s license).
The prior owner sues to have the sale rescinded because of fraud. Luckily, you have title insurance which protects you when documents are executed under a false Power of Attorney.
Let’s now assume a similar set of facts, but this time your neighbors died in a plane crash and willed the property to their son and daughter. Further assume that the property is in a trust and upon the death of the parents the son and daughter became the surviving trustees with the power to sell. You purchase the property and two years later the daughter sues to rescind the sale on the grounds that her brother was only 17 years old–a minor–at the time he signed the sales contract. Again, luckily you have title insurance that protects you in the event a transfer occurs through a deed signed by a minor.
I could go on, but I’m sure you get the gist. Title insurance protects you and your heirs, even after your demise. It’s typically money well spent. It’s stated best in one of our taglines: “Peace of Mind for your Piece of Property.”
DISCLAIMER: Over 23 years I have witnessed title companies provide the benefits described above to our clients. However, title insurance functions as any other insurance policy, with exclusions, limitations, and failures in eligibility and coverage. We have witnessed these realities as well.
Until the next post … may health and happiness abound!