Title insurance is normally purchased at the same time as you buy your home. It insures you, the buyer, against certain defects in the title such as that the seller really didn't own the property or that there were hidden mortgages or tax liens or that the boundaries weren't as specified. If you get a mortgage as part of your purchase, chances are the lender will insist that you get title insurance, indeed a special form that specifically protects the lender. However, do you need title insurance to protect yourself? What about if the lender is the seller who doesn't care whether or not you get title insurance? Technically, you don't need title insurance any more than you
need homeowner's insurance to offer peace of mind against a fire
loss. But this unique form of protection insures that you
actually own your property, free and clear of impediments and, as a consequence, is worthwhile
Alternatives to Title Insurance
Alternatives to title insurance: You can go, on your own, to the local county clerk's office and visit the hall of
records to see if the seller of the parcel has any liens or judgments that are recorded against it, or them. Then check with the Secretary of State's office in your locale to see if there are any financing statements that have been filed under the Uniform Commercial Code or any state law. Then you can go to the local U.S. District Court to ascertain whether, in the Bankruptcy Court, there is a case pending in which the seller is named as a party. If your city has a building or fire department, check there for potential violations or for an improper certificate of occupancy. An abstract company is sometimes used as a subcontractor to perform the work and assure quality control. You can do all of these things on your own to be certain you're getting clear title. Or, you can buy title insurance.
Some Things You Get with Title Insurance
Here's what the typical title insurance policy examines and insures against:
o Tax description and tax search, to make sure that the premises you are buying is identical to the tax lot, and informs you that the taxes are either paid or unpaid.
o Building and fire department searches. If your municipality has a building and fire department, it will typically have its records searched for possible violations.
o Street report. This ascertains whether or not there is legal (as opposed to practical or physical) access to the nearest public street from your residence. Without this, it is difficult to utilize your property.
o Survey check to be certain that the metes and bound description marches; has the survey's descriptions read into the report.
o Bankruptcy search, to determine whether nor not the seller has filed for bankruptcy.
Other Benefits to Title Insurance
o Certificate of Occupancy search is usually also conducted to tell you exactly what the premises may be legally used for, and for you to compare what the certificate says as to number of rooms and floors with the physical plant that you can see.
o Covenants and restrictions that run with the land are also reported. Some of them can be resolved by purchasing affirmative insurance from the title company.
o Reports on whether or not any liens or judgments have matured against the owners (and the land), including water and sewer charges in some municipalities. Title insurers are regulated by the state, as are virtually
all types of insurance policies. They have the ability, after
reporting a problem, of resolving it by offering affirmative
Problems You Can Avoid
a~z Suppose that you are going to purchase a house in a rural area that is serviced by a dirt road. The title company finds out that this is a private, not a public road, and that a portion of it travels over the land of some third person. It is usually possible to obtain affirmative insurance that the owner (and new buyer) of the premises will be able to obtain access to the nearest legally opened street.
a~z Many older parcels in planned communities have covenants and restrictions that run with the land. For example, it may say that the owner cannot use the premises for stabling horses. If they are used -- even years afterwards -- the lands could revert to the heirs of the original grantor of the deed with the restriction. The title company will offer insurance that for so long as the premises are utilized as they are at the time of the transaction, there will be no reversion.
Other Problems to Avoid
Title insurance has considerable value even in areas that have been settled for a long period of time. On Long Island, New York, in the 1960's, for example, the area had been settled for more than 300 years yet a substantial claim was made that various Indian tribes had rights to land in Suffolk County, at the eastern tip of the Island. The claims were sustained, and the residents would have lost their homes -- and substantial investments-- had they not had the title insurance. The title insurance companies were less lucky, since they had been insuring the land for many years and had concluded that the ownership issue was an unlikely challenge.
The cost of title insurance is regulated and not very expensive. Since most mortgage lenders require title insurance, anyway, the add-on cost for what is called the fee policy -- for the homeowner-- is a bonus.
Remember that title insurance only gives you coverage up to a certain point in time for all events that took place during a previous point in time.
Additional resources provided by the author
New York Board of TItle Underwriters
The 90 Second LAwyer's Guide to Real Estate (Wiley, 1997