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1. What is title insurance?
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Title insurance is an insurance policy that protects against future loss, should the title condition be any different than when the policy was written.
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2. What is title?
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"Title" is the foundation of ownership of property. It is a collective term that makes up your legal rights to own, possess, use, control and dispose of land. Title takes into account all previous ownership, uses, and transfers. In order to legally transfer real estate property, a title search must be performed and in most cases the title must be determined as clear, or free of defects or encumbrances.
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3. What is a title defect?
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A title defect is something missing from or encumbering the title, for example, a claim on the land by an undisclosed heir from a previous owner. It includes anything in the entire history of ownership of a piece of real estate which may encumber the owner’s right to the “peaceful enjoyment” of the property or which may cause the owner to lose any portion of the property
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4. Why does buying a home differ from all other purchases?
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No other property has a useful life that compares with the life of land. Land is permanent, and the usage of land can change over the years. Owners die, new ones succeed, but land goes on forever. Owners of goods may change their locations at will, but land is immovable. Being both permanent and immovable, it lends itself to the absorption of innumerable rights. Over the ages, this so impressed lawyers and jurists that they formed a separate body of laws for land. These laws, creating many types of rights in land, are so numerous and complex, it is impossible for there to be a mathematical certainty of ownership.
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5. Why do I need title insurance?
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There are two types of insurance policies: a lender’s policy (also called a loan policy) and an owner’s policy. The lender’s policy financially covers the amount of a loan and provides protection to the lender. A lender’s policy does not usually represent the full property value. An owner’s policy protects the landowner and can financially cover the full property value. While a loan policy is often required as a part of a real estate transaction, an owner’s policy is generally considered optional.
With an owner’s policy, the landowner is protected against any title loss, which ensures the value of the property. Because a title policy is considered insurance, if a claim is made against the title and that claim reaches the courts, the title insurer must pay any and all costs associated with defense against the challenge, and if unsuccessful in that defense, reimburse the landowner for any reduction in the value of the land.
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6. What is a title search?
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A title search is a detailed examination of the historical, public records concerning a property. These records include deeds, court records, property and name indices, and many other public documents. The purpose of the search is to verify the seller’s right to transfer ownership, and to discover any defects or encumbrances on the title.
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7. What kind of problems can a title search reveal?
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A title search should show all title defects and encumbrances, as well as other claims and restrictions. Among these are unpaid taxes, unsatisfied mortgages, judgments against the seller and restrictions limiting the use of the land.
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8. Are there any problems that a title search cannot reveal?
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Yes. There are some hidden hazards that even the most diligent title search may never reveal. For instance, the previous owner could have incorrectly stated his or her marital status, resulting in a possible claim by a legal spouse. Other hidden hazards include fraud and forgery, defective deeds, mental incompetence, confusion due to similar or identical names, and clerical errors, in the records. These defects can arise after you have purchased property and can jeopardize the right to ownership.
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9. Why won’t a General Warranty Deed fully protect me?
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A deed is just a document used to show transfer of ownership, and is evidence only that you have taken over whatever rights the seller had in the property. A deed does not eliminate the rights others have, and a deed won’t show you liens or claims that may be outstanding against the title.
With a General Warranty Deed the grantor can pass on to the grantee only such title as he or she holds. It is true that if title fails, the purchaser may have, under some circumstances, a cause of action against the grantor, but the chance of recovery is dependent entirely upon the financial ability of the grantor to pay at the time that judgment is acquired – often after a long and expensive court action. Title insurance is a corporate guarantee of a company operating under the rules and regulations of the insurance commission or other state agency. The security afforded by any policy is controlled by the integrity and financial structure of the company issuing the policy.
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10. The contract I signed makes the sale subject to title to the property’s being good. Doesn’t that protect me?
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Only superficially. The seller cannot be sure the title is good. Even a perfect-looking title can be seriously defective because of hidden defects. If anything should happen to defeat your title, your cause of action would be against the seller. Your chance of recovery would depend upon your finding and suing the seller, winning the suit and finally, on whether or not the seller was able to pay the judgment. In any event, your attorney’s fees and expenses would be a loss to you.
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11. After I retain an attorney, can’t I be assured that my title is good?
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Every attorney knows that there are hazards in real estate titles which cannot possibly be discovered with even the most diligent search of the public records. For instance, the attorney cannot be sure: that the marital rights of all previous owners have been properly relinquished; that all mortgages, judgments, etc., affecting the property have been properly indexed in the record room; that all signatures on all recorded documents are genuine; that no unknown heir of a former owner will appear to assert his or her claim. These are but a few of the matters that can crop up to defeat real estate titles. Among others are such circumstances as fraud, duress, infancy, insanity, false personalities, etc.
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12. When I buy a home and the deed is recorded in a record room, wouldn’t that prove that I own the home I bought?
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No. It is only evidence that you have taken over whatever rights the grantor had in the property. For instance, if the deed to the grantor had been forged, then the grantor had no rights to pass it on to you. As another example, perhaps the driveway on your property had been made a joint driveway by giving the next-door neighbor the right to use it. In that case, the grantor or seller could not pass sole ownership of the driveway on to you, no matter what the deed says. The recorded deed is public notice that you have taken over only those rights the seller may have had in the property.
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13. Is title insurance as important as other types of insurance, such as fire or homeowners’?
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Yes, because your losses without title insurance can be greater than fire or homeowners’ losses. If a house burns, for example, the land is still there on which to rebuild. If title to the property fails, you have nothing. That is why owner’s title insurance is always written to cover the value of the house and the lot.
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14. Does title insurance protect the safety of my investment and the security of my home?
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Yes, although title insurance cannot eliminate title defects any more than fire insurance can eliminate fire, title insurance (1) assures you of the best possible legal defense if your title is attacked and (2) reimburses you up to the face amount of the policy if the title, or any part of it, should fail.
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15. Are there several kinds of title insurance?
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There certainly are. First, there is the owner’s policy, which the home purchaser needs for his or her protection. Second, there is the mortgagee’s policy, which protects only the mortgage/money lender. Most financial institutions lending mortgage money on a wide scale insist upon mortgagee title policies for their protection. Third, there is a leasehold policy used primarily by commercial and industrial organizations that rent property on long-term leases.
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16. How much does title insurance cost?
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In Pennsylvania, title insurance is a regulated industry. Rates are set by the Title insurance Rating Bureau of Pennsylvania and approved by the Pennsylvania Insurance Commission. Please use our title insurance rate calculator to see how much title insurance will cost in your transaction.
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17. When I buy a home and protect it with title insurance, what happens in the event someone should challenge my ownership of the property five or ten years after the purchase?
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You notify the title insurance company, in writing, of any claim made on your property. In accordance with the terms of the policy, your title insurance company will undertake, at its expense, a defense of the title. If the claim reaches the courts, the title company retains attorneys and bears the expense of defending the suit. This is true whether your period of ownership is a day, a generation, or more.
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18. If the person I am buying from has title insurance, why do I also need it?
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The first and most obvious reason is that the previous owner could, in a very short time, do all sorts of things to encumber the title. Among other things, he or she could grant easements or construct improvements and encroach on adjacent property. The deed transferring the title can be invalid if, for example, a signature on it is forged or if anyone who signed it is incompetent.
In addition, if a title defect arises antedating the date of acquisition of the property by the grantor to you, you would have to take action against the grantor under the terms of the deed to you. In that case, as an insured, the title insurance company would represent the defendant in your action.
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19. How does title insurance protect both me and my heirs and devisees?
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A title insurance policy provides coverage from the time of its effective date back to the origin of the title. After the property has passed to your heirs or devisees, if any defect antedating the policy should crop up, the title insurance company would defend the title for your heirs and devisees just as it would for you if you were alive.
Or, if the property were sold under a General Warranty Deed and the purchaser faced a claim arising within the effective term of the policy, the purchaser’s action for recovery from you or your heirs would be taken over by the title insurance company according to the terms of the policy issued.
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20. Do many people actually lose their homes because of title defects?
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Not if they have title insurance! Title companies realize how important it is to homeowners to keep their homes. Therefore, when an insured title is found to be defective, the title company does everything possible to perfect the title. Often it is necessary to purchase a claimant’s right in the property and transfer them to the insured. This is practically always possible when only a partial interest is outstanding.
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21. Are all titles insurable?
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No indeed; applications may be turned down. If the title is uninsurable, then it is usually in such an undesirable state that no prudent purchaser would want it. If the contract specifies that a sale is contingent upon good title being passed on to the purchaser, the buyer is not obligated to purchase property with an uninsurable title.
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22. Do I need an attorney?
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The Commonwealth of Pennsylvania does not require parties to have legal representation in order to sell or purchase real estate; however, many people feel more comfortable knowing an attorney will represent their interests before and at closing. Whether or not you choose to use an attorney, you can count on HomeLink to settle your real estate transaction quickly and efficiently. If you decide to use an attorney for your transaction, but have not yet chosen one, please contact HomeLink to assist you in your selection.
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23. What are endorsements?
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There are many endorsements, or enhancements to the title insurance policy which a lender or owner can ask for in order to extend the basic coverage of the policy. Click here for further information regarding rates or enhancements to your title policy.
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