In real estate there is a concept called "chain of title." X sells to Y, Y to Z, and so on.
By the time you arrive at your closing, a title examiner will have performed a title search which will include all documents involved in the chain-of-title. This is also done to uncover any tax liens, judgments, mistakes in the record, undisclosed heirs or unknown easements.
When the search has been completed, the examiner will write a letter of opinion expressing that the seller does indeed have good title. This will satisfy the bank and will get you to your closing. But, will it insure that you have no title problems in the future?
According to the American Land Title Association (ALTA), about 25 percent of all residential real estate transactions have issues with the title. Most are resolved prior to closing; however, some claims and challenges can crop up after you have become the new owner.
Some of these include:
- Forgery and impersonation
- Lack of competency, capacity or legal authority of a part
- Improper recording of deeds
- Sudden appearance of someone claiming to have a prior interest in the property
- Mechanic's liens
- Undisclosed prior mortgage or lien
- Encumbrances or judgments
- Erroneous or inadequate legal descriptions
These are situations which could derail your ownership or cost you in legal fees to battle it out in court.
Unlike homeowner's insurance which is there to protect you against a possible future event, the purpose of title insurance is to protect you from an event which has already happened.
There are two types of title insurance policies that you will be offered at your closing:
- The Lenders' Policy protects the bank against possible title problems and you will be required to purchase this policy if you are financing your home. It does not, however, protect your interests.
- For your protection you will need to buy an Owner's Policy.
There are also policies that offer Extended Coverage which goes beyond the standard coverage.
The cost of title insurance varies and correlates with your property's value. The purchase is a one-time premium. Once it is paid you never have to buy it again.
Prior to your closing, talk with your attorney about title insurance, read the actual policy and make certain that you are doing enough to protect yourself and your home purchase.
Related Posts:
Homeowners Insurance - Getting the Best Policy
Home Warranties, Are They Worthwhile?
What is Included in a Home Purchase?
The Importance of Being Pre-Approved
Claudette Millette, President, TheBuyersCounsel - 800-392-1446, E-mail
Serving Home Buyers in: Ashland, Holliston, Hopkinton, Natick, Newton, Northborough, Framingham, Sherborn, Southborough, Sudbury, Wayland, Westborough
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