When a piece of real property is financed, purchased or sold, a record of that transaction is generally filed in public archives. Likewise, other events that may affect the ownership of a property are also documented and filed. These may include liens, levies, encumbrances, etc. When a buyer comes to us to purchase title insurance, we search these records to resolve title issues, reduce people’s risk, and prepare for the transaction process. In the end, our work assures people’s ownership rights and helps protect them from future claims.
Simply stated, the title to a piece of property is the evidence that the owner is in lawful possession of that property.
Title insurance protects real estate owners and lenders against any property loss or damage they might experience because of liens, encumbrances or the defects in the title to the property. Each title insurance policy is subject to specific terms, conditions and exclusions.
Insurance such as car, life, health, etc. protects against potential future events and is paid for with monthly or annual premiums. A title policy insures against events that occurred in the past of the real property and the people who owned it, for a one-time premium paid at the close of the escrow.
Title insurance protects against claims from defects. Defects are things such as another person claiming an ownership interest, improperly recorded documents, fraud, forgery, liens, encroachments, easements and other items that are specified in the actual policy.
Purchasers and lenders need title insurance in order to be insured against various possible title defects. The buyer, seller and lender all benefit from the issuance of title insurance.
After the escrow officer or lender opens the title order, Monteith Abstract & Title begins a title search. A Preliminary Report is issued to the customer for review and approval. All closing documents are recorded upon escrow’s instruction. When recording has been confirmed, demands are paid, funds are disbursed, and the actual title policy is created.
Escrow refers to the process in which the funds of a transaction (such as the sale of a house) are held by a third party, often the title company or an attorney in the case of real estate, pending the fulfillment of the transaction.
A standard policy insures the new owner/home buyer, and a lender’s policy insures the priority of the lender’s security interest.
Other types of insurance coverage focus on possible future events and charge an annual premium – such as flood insurance or hazard insurance that safeguard against loss from wind damage. Title insurance protects against loss from hazards and defects already existing in the title and is purchased with a one-time premium.
Insuring a home’s title begins with a search of public land records affecting the property. The title agent or attorney working on behalf of the underwriter examines pertinent documents to determine whether the property is insurable. Those documents include deeds, wills, trusts, outstanding mortgages and judgments, property liens, highway or utility line easements, pending legal actions and notary acknowledgements.
When title problems are disclosed during the search process, they are corrected whenever possible to avoid future claims. According to surveys done by the American Land Title Association (ALTA), title problems consistently arise in one out of three real estate transactions (36%).
The process of performing title searches and curing title problems does not come cheap. Industry studies find that title insurers spend an average of 92 cents out of every premium dollar as their cost of doing business.
The most common actions to cure title defects include:
- Releases/pay-offs for liens – 33%
- Releases/pay-offs for deeds/mortgages – 19%
- Typographical corrections (names, addresses, legal descriptions) – 17%
- Clearing estate/family issue – 11%
- Clearing physical property issues – 7%
After all this searching and examination, a title problem may still be hidden or missed, such as:
- A forged signature on a deed
- An unknown heir who steps forward to claim ownership of the property
- An expired or forged power of attorney used during a property transfer
- An incorrect public record
In each of these cases and many more, when there is appropriate title insurance coverage, a policy will offer financial protection. The title insurer defends the title and either perfects the title or pays valid claims.
Lenders require the homeowner to purchase title insurance, just as they call for fire insurance and other types of coverage to protect their financial investment in the property. A lender’s policy insures that the mortgage is valid and the lien priority is correct. In addition, title insurance is required for lenders who package and sell their loans in the secondary mortgage market.
For the homeowner to be covered, he or she must purchase an owner’s policy in addition to the required lender or mortgagee policy.
Owner’s title insurance lasts as long as the policyholder or his or her heirs have an interest in the property – maybe even after the homeowner has sold the property. It is either purchased for an additional premium or an owner may pay a simultaneous issue charge (usually a smaller amount) for the separate lender coverage.
Title insurance was first issued in 1871 to enable speed and efficiency when property is conveyed, or legally transferred from one owner to another. Because of title insurance, real estate is more marketable and thus more valuable. It has worked so well to protect buyers and lenders against defects in legal ownership that it is spreading around the world.
Therefore, while the title industry in many states closes the transaction, handles the escrow and records the documents, it also works to make the title searches even faster, better and more cost-effective. The role of title insurance to fix problems and pay claims is crucial to the marketability of real estate.
Useful Residential Buyers Documents
What is Title Insurance (download PDF)
Understanding the Title Commitment (download PDF)
Identification Requirements at Closing (download PDF)
Checklist for Closing Day (download PDF)
Homebuyer Guide (download PDF)
Homeseller Guide (download PDF)
Don't Get Phished (download PDF)
Real Estate Terms to Know (download PDF)
Checklist for Real Estate Agents (download PDF)
Monteith Makes it Easier with eClosings
What is eClosing?
An eClosing is the electronic execution of some or all mortgage loan closing documents in a secure digital environment. eClosings allow for a more efficient and streamlined closing experience for the borrowers, lenders, and third parties
How does eClosing work?
eClosings can be a hybrid paper and electronic process. Key documents such as the promissory note and security instrument can be printed to paper and wet-signed, while other documents are signed electronically.
eClosings result in eMortgages only if the promissory note is signedd electronically
This information is sourced from https://www.fanniemae.com/content/fact_sheet/eclosings-overview
Each vendor, technology provider, lender, regulatory authority, or other industry stakeholder may have
a different definition. There are very specific promissory note requirements.