Jenny and Joe Colon with Shaffer Title came to our office today to bring us a wonderful lunch and give us a refresher on title insurance.
Did you know the first title insurance policy was issued in 1876? How about that the dollar value of claims on one of the "big five" title companies has risen from $500,000 in 2002 to over $20 million in 2008?
We all know there are 2 types of title insurance: lenders and owners and they protect the financial interest in real property against loss to title defects, liens or other matters.
Unlike what many buyers believe, lender's title insurance does not benefit the owner in the event of a claim. ONLY owner's title insurance can protect the owner.
How does owner's title protect the owner?
- Legal defense - if it is necessary to enter legal defense, the title insurer will employ legal cousel to defend the owner's rights under the policy or in any suit or proceeding adversely affecting the title.
- Compensates for loss - if a loss is sustained, the owner is protected up to the full amount of the policy (purchase price).
A title search is not enough to protect an owner against defects in title!
Examples of Hidden Risks:
- Marital status or owner incorrectly given.
- Will is misinterpreted.
- Undisclosed heirs. Remember the rules of intestacy - if a person dies without a will, the court must decide who the rightful heirs are. Even then, a court's decision is not binding on an heir who was not notified of the proceeding.
- Mental incompetence or Minors. To be valid and binding on a minor or incompetent, a transfer of property must be made by the guardians or one appointed by the court. If a deed or release was executed by a person who was a minor or under mental disability at the time, the transaction may be voidable or invalid.
- Fraud and forgery. Owner is impersonated; recorded documents may be forgeries.
- Defective deeds. For example: deed is delivered without consent of owner or after owner's death, document may be execited under an expired power of attorney, grantee's name may have been inserted in the deed after delivery, officer of a corporation may not have property power to act.
- Confusion due to similar names.
- Errors in records or clerical mistakes. Examples: document may be missed in title search, entries or indexing may be erroneous, names are misspelled.
- Unpaid estate, inheritance, income or gift taxes.
Does a buyer REALLY need to get an owner's title policy? Here are a few instances I have dealt with where title insurance was needed:
- Deed 3 transactions back was written and recorded incorrectly.
- Legal description was incorrect (and had been written incorrectly for the past 2 transactions) and the seller didn't own all of the land the house was sitting on.
- Unreleased deed of trust from 1982.
- Power of attorney revoked an hour before closing and no one knew until after transaction had been recorded.
Like any insurance policy, you hope title insurance is never needed, but isn't it better to have it than not?
How to save money on title insurance???? Ask for a re-issue rate! If the seller has owned their home for only 5-7 years and purchased an owner's title policy, the buyer can get a 30% discount on their title policy.
Tina in Virginia