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Title insurance services offer a wide range of protection to the many different parties who have various interests in real estate transactions. The benefits of title insurance protect:
The Purchaser
Whether the transaction involves a multimillion dollar office building or a single family home, the purchaser faces possible serious financial loss or could lose the right to own the property altogether if a serious cloud on the title goes undetected. An expert title search before the purchase will identify the nature of title and fix any problems that are clouding the title.
Owner's title insurance offers protection against various hazards, including those even the most thorough search of public records will not disclose, such as forgeries, missing heirs, or recording errors. And, owner's title insurance will pay valid claims and the defense costs against attacks on or challenges to the title.
For a one time premium that is modest in relation to the value of the property involved, the purchaser receives the protection of a title policy backed by the reserves and solvency of an insurance company. In the unlikely event the insurance company ceases to operate, reserves offer the assurance that another insurer will accept the risk for the existing policy holders.
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The Seller
Similarly, sellers want to be sure the title is marketable, so they can sell their property. A title insurer facilitates the flow of mortgage money by identifying title problems so they can be resolved whenever possible, and then by insuring against title risks. Title insurance encourages the expeditious completion of a transaction, thus the sellers receive their money in a timely fashion.
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The Lender
Financial organizations are acutely concerned when it comes to the security of funds they lend for real estate investments.
Lender's title coverage provides a high degree of safety against loss of capital from title hazards. By identifying risks and eliminating them when possible, the title industry is a major element in encouraging lenders to invest in mortgages - rather than in other assets with a lower risk.
Lender's title insurance guarantees the lender a valid and enforceable lien and assures that no claimant other than those noted in the policy has a prior claim against the real estate. The policy assures that the purchaser-borrower has title to the property being pledged as security for the loan. And the policy obligates the title insurer to pay for defending against any claim filed against the title that might supersede the lender's lien. And, if unsuccessful, it must satisfy that claim should it be upheld in court.
Another benefit is the in-depth expertise of title company personnel, who facilitate the mortgage loan process and help in resolving differences among the various parties in a transaction. This can range from relatively routine assistance in a basic residential loan to helping with the multifaceted legal and financial aspects of complex, multimillion dollar commercial transactions. In the more complicated examples the title company's effort on behalf of the lender can extend even further.
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The Real Estate Broker
There is much to be gained by the real estate broker who calls the title insurance company in the early stages of a transaction. The security of title insurance greatly enhances the possibility for loan approval. And, abstract or title insurance personnel - by fast, accurate verification of title or by swift resolution of a title problem - often make it possible to promptly complete a transaction that would have been seriously delayed or would have been altogether lost.
By calling the title company or its agent, the broker promptly becomes informed of the alternatives for clearing up title problems found in a search of public records and learns in a timely manner what information the title company needs to issue the insurance. This close contact also enables the broker to become better informed on available title coverages so the parties can be readily assisted with their needs.
Having up-to-date knowledge of title hazards and safeguards will enhance the broker's stature as an important market resource.
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The Attorney
In some states it is a real estate attorney who handles the closing. The attorney will create an attorney's opinion, setting forth what he/she believes to be the condition of the real estate title. Title insurance enables the real estate attorney to offer his or her client substantially greater protection than what is attainable with a legal opinion alone. Title insurance resolves this dilemma by backing up the attorney's title search with guaranteed financial indemnity from a licensed, regulated corporate insurer and by providing adequate capital and reserves to respond to claims.
The protection of title insurance extends far beyond the risk that may be incurred by the purchaser as a result of an error or negligence by the person performing the search and examination. Among the many risks covered by title insurance (that would not be covered by the attorney's malpractice insurance) are:
- Mistakes in the interpretation of wills or other legal documents
- Impersonation of the owner
- Forged deeds, mortgage releases, etc.
- Instruments executed under fabricated or expired power of attorney.
- Deeds delivered after death of seller or buyer
- Undisclosed or missing heirs
- Wills not probated
- Deeds or mortgages by those mentally incompetent or of minor age (or supposedly single but actually married)
- Birth or adoption of children after date of will
- Mistakes in the public records
- Falsified records
- Confusion from similarity of names
- Transfer of title through foreclosure sale where requirements of foreclosure statute have not been strictly met
While ALTA recommends that all parties to real estate transactions be represented by their own counsel, it is the view of the association that no real estate attorney adequately protects the interest of a client without advising that client of the availability and protection of title insurance.
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The Homebuilder
Delays for the homebuilder can also be minimized by contacting the title company early in the building process. Actions initiated by the title company that have a positive effect on the builder's completion time can include the following:
- Calling a meeting of everyone involved to establish coordination and minimize problems (builder, developer, attorney, engineer, architect, escrow holder, etc.)
- Expediting title search and examination so any difficulties can be dealt with more quickly
- Advising on mechanic's lien coverage and other title insurance needs of parties to the transaction
- Setting up sale escrow accounts and handling disbursements upon closing
- Coordinating with subcontractors so their problems can be dealt with in the early stages of the project
- Arranging for prompt handling of any title claims that arise
By assuring priority of the first lien mortgage for the lender, title insurance makes construction loan financing considerably more attractive.
Title company personnel help the builder or developer establish ownership rights to assure local government that a project may proceed as planned. This normally expedites approval.
And title companies will insure titles to individual lots in a development on a mass production basis, often at a reduced rate, so the new owners' title policies can be promptly furnished to home buyers after updating of title work, rather than following extensive and time-consuming back searches upon the issuance of each policy.
Besides the basic owner and lender policies, title insurers offer various special coverages that are important to different parties. Additional coverages relating to new construction are available in some areas. These coverages could include mechanic's lien protection or special coverages regarding surveys or zoning.
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*Copyright ALTA (American Land Title Association)
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