Title insurance policies protect you against human error that could cause someone to challenge the ownership of your property and derail a sale.
What Is a Title Insurance Policy?
Title searches go back to the first documented U.S. land possession. These searches start with the most recent deed and go backward from there. Title insurance policies are designed to cover you for any errors that occur in this labor-intensive and largely manual process.
Property transfers were first recorded alphabetically in heavy old and dusty separate grantor and grantee books. Today, most records are stored on computer. County records are often maintained at local courthouses or with the clerk of registrars.
How Title Insurance Works
A title search starts in the present and goes back through as many chains-of-title are needed to trace the origins:
- Title searches start with the most recent deed, searching the grantee's name (the person now holding title) backwards in time, until the deed when the grantee acquired the property is located.
- That grantor's name is then searched backwards in time in the grantee's book to find when the grantor acquired title as a grantee.
- This process continues, and over time, the property description involves larger and larger parcels of land.
- Eventually, the searcher finds the original U. S. patent.
Other Factors Affecting Title
Deeds establish chain-of-title, but sometimes those chains are broken. In addition, title searchers also look for reconveyances (proof that any encumbrances are paid off), and they look for easements, rights-of-way, CC&Rs, and other elements affecting title to the property. Here are more records that are searched to piece title together:
- Marriage records
- Death certificates
- Tax sales
Who pays for the policy varies by region and can differ from county to county, but is negotiable in the purchase offer. Sometimes, sellers and buyers split the fee for the owner's policy. Typically, the buyer pays for the lender's coverage. You pay for title insurance only once—at the time the fee is due.
Cost of title insurance can range from several hundred to several thousand dollars. The amount will vary by the state you live in and depends upon the price of the home.
Types of Title Insurance Policies
Depending on the title company, consumers can choose among a variety of title insurance coverage options, but the top three choices are Owner's, Lender's, and Extended Coverage.
Basic Owner's Title Policy Coverage
This policy insures clear title to the property. It protects against:
- Incorrect signatures on documents
- Forgery, fraud
- Recording mistakes
- Restrictive covenants
- Encumbrances or judgments
Basic Lender's Title Policy Coverage
This policy protects the lender against:
- Mechanic's liens and unrecorded liens
- Unrecorded easements and access rights
- Defects and other unrecorded documents
Extended Owner's Title Policy Coverage
This policy offers additional protection against:
- Building permit violations from previous owners
- Errors in subdivision maps
- Covenant violations from previous owners
- Living trusts
- Structure damage from mineral extractions
- Variety of encroachments and forgeries after title insurance is issued
Alternatives to Title Insurance
The only alternative to title insurance is none at all. This is not advisable, because a future challenge to your ownership could result in an expensive legal battle and in the worst case, loss of your property. For this reason, mortgage lenders will always require title insurance be obtained before closing on a deal.
- Title insurance is a policy obtained during the purchase of a property to ensure the tile is free and clear.
- The policy offers protection against errors made in the title search process.
- Premium is paid only once for the life of the policy.
- Failure to obtain title insurance makes you vulnerable to future challenges.