When you purchase real property, you are not just buying the physical property itself, but a bundle of rights that attach to the property, as well. One of those rights – title – is your legal right to own that property. (A deed is the physical manifestation of those rights, i.e., the document that memorializes your right in the title to the property.)
What happens, though, if there was a break somewhere along the chain of ownership to the property? What if you purchase real estate and there is a prior existing claim to it, such as a tax or mechanic’s lien, and the seller failed to inform you? What happens if the mortgage loan is somehow invalid? Your ownership becomes subordinate to the previous claim and you no longer have a right to that property. That’s where title insurance comes in.
Title insurance indemnifies against the losses incurred by title defects. It is used to reimburse the insured for financial losses or help defend a lawsuit attacking the title. Both buyers and lenders secure title insurance to protect their interests. Buyer’s insurance will provide that the title is free from all defects, incumbrances and liens, while a lender’s policy protects any subsequent purchasers of the loan.
Prior to signing off on a policy, the title insurer will conduct a search of land records to determine whether any problems involving the property’s title exist. If a title problem is found, it is incumbent upon the title company, not the purchaser or lender, to resolve the issue before the real estate closing can occur.
If you are preparing to purchase real property, check with your attorney to help you with acquiring title insurance or Contact Us.