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 is meant to cover you for any errors that occur in this labor-intensive and mostly manual process.
Property transfers were first recorded alphabetically in heavy old and dusty grantor and grantee books. Today, most records are stored electronically. County records are often kept 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 as are needed to trace the origins.
- Title searches start with the most recent deed, searching the grantee's name (the person now holding title) back in time, until the deed when the grantee acquired the property is located.
- That grantor's name is then searched back in time in the grantee's book to find when the grantor took title as a grantee.
- This process goes on. Over time, the property description involves larger and larger parcels of land.
- After a time, the searcher finds the original U.S. patent.
Other Factors Affecting Title
Deeds provide chain-of-title, but there are times when those chains are broken. Title searchers also look for deeds of reconveyance (proof that the deed of trust has been paid in full), and they look for easements, rights-of-way, CC&Rs (covenants, conditions, and restrictions), and other issues that could affect the 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 title insurance policy varies by region and can vary from county to county, but terms can be worked out in the purchase offer. At times, sellers and buyers agree to split the fee for the owner's policy. Most of the time, 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 a few hundred to thousands of dollars. The amount will vary by the state you live in and depends on the price of the home.
Types of Title Insurance
Depending on the title company, buyers can choose among a variety of title insurance options. The top three choices are owner's, lender's, and extended coverage.
Basic Owner's Title Policy
This policy insures clear title to the property. It protects against:
- Incorrect signatures on documents.
- Forgery and fraud.
- Mistakes made when the title is recorded.
- Restrictive covenants.
- Other issues, barriers, or legal judgments.
Basic Lender's Title Policy Coverage
This policy protects the lender against:
- Mechanic's liens and unrecorded liens. These can be filed if work that was done on a home was not paid for.
- Unrecorded easements and access rights.
- Defects and other unrecorded issues.
Extended Owner's Title Policy
This offers more shelter against:
- Building permit violations from former owners.
- Errors in subdivision maps.
- Covenant violations from former owners.
- Living trusts.
- Structure damage from minerals being removed.
- A variety of issues and fraud after title insurance is issued.
Alternatives to Title Insurance
The only alternative to having title insurance is to have none at all. It's not a good idea to go without it, though, because a future challenge to your ownership could result in a costly legal battle and in the worst case, loss of your home. For this reason, mortgage lenders will always require you to buy title insurance before closing on a deal.
- You must obtain title insurance when you buy a property, to ensure the title is free and clear.
- The policy can protect you against errors made in the title search process.
- You only pay once for the life of the policy.
- Failure to obtain title insurance can open you up to future challenges against your home.