Conducting a title search prior to transfer of real estate property involves searching for every available record or document that relates to present and prior ownership of the property in question with the goal of clearly defining the current status of the property title. In layman’s terms, we want to be sure that the property being sold truly and completely belongs to the seller and that he or she has the legal right to transfer ownership of the property.
Records searched will include public and court records, property tax records, deeds, mortgages, wills, judgments, divorce decrees, liens, claims, and other legal proceedings or findings. Any defects found in the title to the property, will have to be cleared or otherwise dealt with prior to transferring ownership.
If title has been searched and cleared prior to the sale of a property, then why is there a need for title insurance? Even the most thorough title searchs may fail to find certain risks, which due to their nature, are “hidden” and not necessarily documented. These could include such situations as:
- Errors in property boundaries due to inaccurate surveys
- Claims made by heretofore missing heirs
- Mistakes in probating or interpreting previous wills
- Legal documents executed under fraudulent power or attorney
- Clerical errors in recording legal documents
- False personations and/or forgeries
- Claims not documented in the public or court records
Hidden risks such as these make title insurance a necessary and wise one-time investment. If at some future time, a claim is made against your property due to one of these hidden risks, your title insurance policy will cover the costs of a legal defense. If the claim is upheld by the court, the policy will reimburse you for all or part of the actual loss, depending on the value of the policy.
In the case of refinances, most state law requires that the lender secure a Mortgagee’s Policy of Title Insurance. This policy guarantees the lender that a new mortgage will be the first and only mortgage on the property, and that all prior mortgages and liens have been paid in full and satisfied. This policy is generally paid for by the person refinancing as part of the closing costs. The attorney or title company closing your transaction will handle the title search but you can also perform one as well, if you want. Of course your attorney, Title Company or lender will not accept your search to close your property but you can get an idea if there are any encumbrances on the property. If you are paying cash then you will want to buy title insurance for yourself. If you are funding the closing with a lender the closing agent will provide a lenders policy and offer you a policy for an additional fee. The fee is usually at a discount since they already have a lender buying a policy also. The reason they offer you a policy is because the one the lender buys only covers the loan and loan amount. You need one to cover you and your purchase price. Don’t worry too much about title searches and insurance, as the closing attorney or Title Company will take care of all of that for you.