Peggy Chirico ~ Hartford & Tolland County Real Estate Blog

What is Title Insurance?

The process of buying a home brings up many questions as you move through the process. Phrases and words you have never even heard of are being flung around like you should just know what they mean! It can be a confusing process!

Title Insurance is probably one of those things! What the heck is title insurance? In layman's terms, title insurance is a policy issued by a Title Company to insure both you the purchaser of the property and the lender of any defects that may affect the "title" or rightful ownership to the property. It will also protect against monetary claims against the property.

The property you are purcahsing has gone through many stages. The parcel was created, maps drawn and the description of the property spelled out. At the time the home was built, there may have been rights given to utility companies to bring water, power or phone lines to the home and possibly surrounding homes. These are called easements. There may have been covenants, conditions and restrictions (CC&R's) placed on the property. The builder may have taken out loans to construct the property and land held as collateral. (This lot and all surrounding land if it was a development) Contractors came in and did construction. Transfer of ownership has occurred from builder to buyer, and who knows how many transfers since the time the property was built. Taxes are assessed upon the property.

Many things with the property can change over the lifetime of the land and home. Loans against the property, paid off loans, death of an owner with transfer of the property to an heir, judgments against an owner for an unpaid debt or child support, a contractor placing a lien on the property for money owed on work completed on the property.

All of these types of things create an "interest" in a property. Some of these things will always transfer with the property. Things such as taxes, easements and CC&R's. With every transfer of ownership, these will remain and move to the next owner. The items like loans and judgments come and go as does the transfer of ownership. My loan will be paid off when I sell my home to you. It will be replaced with your new loan. Each of these types of transactions require documentation to be recorded with the county recorder where the property is located. There will be a deed recorded from seller to buyer showing change of ownership. The new loan will record a deed of trust or mortgage against the property to show the property is collateral for the loan. Once a loan is paid off, the lender that did have a loan against the property will record a document releasing their interest in the property because the loan has been satisfied.

These types of transfers and recordation of documents is where title insurance comes in. With all of the recording of documents, people and entities placing liens against the property, transfer of ownership, there is a chance that something was missed along the way. Perhaps the lender that was paid off never recorded a document releasing their interest in the property. Perhaps when the property was transferred due to the death of the homeowners, there was an heir who had rights to the property.

Once you have found a property to purchase and an offer has been accepted, the title company will review all recorded documents, liens, easements and restrictions on the property to ensure at the time you take title and possession of the property there will not be anyone who can make a claim to your property. They then will issue a policy of protection for both you the owner, and the lender. The types of claims they will insure against are as follows:

BASIC BUYERS POLICY, provides you, the new homeowner, the following:

• Clear title to the property
• Protection against fraudulently executed documents or forgery
• Protection from judgments or encumbrances from a prior owner
• Defective recodation of documents
• Incorrect signatures on documents
• Restrictive covenants

LENDERS POLICY, required when obtaining a new loan, protects your lender from the following: (coverage extended to a lender is limited to the dollar amount of the loan and decreases as the loan balance decreases and is eliminated once the loan is paid in full)

• Unrecorded liens
• Mechanics liens (from contractors who may not have been paid for work completed)
• Unrecorded easements to the property or access rights
• Defective documentation
• Unrecorded documents

EXTENDED BUYERS POLICY, additional protection available for you, the homeowner protecting against: (check with your specific title company for exact coverages)

• Building permit and zoning violations
• Encroachments to property
• Violation of restrictive covenants
• Subdivision violations
• Post policy discovery of forgery, adverse possession, clouds on title, encroachments
• Mechanics liens

The cost of title insurance will vary based on coverage, but rates are pretty standard throughout the industry and are based on the value of the property. The one time up-front fee paid at the close of escrow will cover you for as long as you have an interest in the property. Title insurance will pay for defending you and your property from anyone claiming right to title

The title company will issue a preliminary report for your review and acceptance prior to the close of escrow. This report will show all of the items that will need to be resolved prior to the transfer of the property. Any unpaid taxes, outstanding mortgage debt or judgments. Be sure and review this document with your agent so that you understand what appears in the report and the type of coverage available. If you don't understand, make sure you get the answers you need. The title company is also available to answer questions.

Title insurance plays an important role in your real estate transaction. It is of utmost importance that you receive title to your new property without the potential for claim against the property by an unknown source.

What is Title Insurance? As you can see from reading above, title insurance is a small investment upfront to protect one of the biggest investments of your life!

Do you have additional questions on Title Insurance? Give me a call, I would be more than happy to discuss it further!

Making the Home of Your Dreams A Reality. As your Agent of Possibility it is my intent to make your home buying or selling process a smooth one!

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