What Is a Title Insurance Policy?
Why You Want to Protect Yourself
To understand title insurance policies in America, let's look at how title companies search the public records. Title searches go back to the first documented U.S. land possession. Title insurance policies protect you against human error that could derail a sale or cause someone to challenge ownership.
Property Searches and Public Records
Historically, title record-keeping has been labor-intensive and manual:
Division of Land
Here are the definitions for division of land:
- Early deeds involved large chunks of land known as townships.
- Townships contain 36 sections and are 6 miles by 6 miles.
- Sections measure 1 mile by 1 mile and contain 640 acres.
- Half of a section is 320 acres.
- 1/4 of a section is 160 acres.
- 1/4 section of 1/4 section is 40 acres.
- An acre is 43,560 square feet.
Title Search Basics
The 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
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
Who Pays for Title Policy Insurance?
This 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. Not many insurance policies can make that claim.