COMMON TITLE QUESTIONS |
The Role of the Title Company in the Real Estate Transaction by Dave Lockwood
Why do I need title insurance?
What types of policies are available to me as a homeowner?
How does the title insurance protect against hidden risks and defects?
How long am I covered by this policy?
Who establishes the rates to be charged for title insurance and the forms to be used?
Title insurance is insurance against loss resulting from defects in the title to a particular parcel of real property.
Why do I need title insurance?
Title insurance protects you, the purchaser or owner, against a loss that may arise by reason of a defect in your ownership or an interest you have in real property. Title insurance protects against future losses arising out of events that have happened in the past. In addition, the title insurance company agrees to defend you in court if there is an attack on your title. It will cover attorney and court expenses or pay a loss caused by a defect in title up to the face amount of the policy subject to the terms listed in your policy.
If title risks are eliminated by a title search, why do I still need a policy after a title search is complete?
There are numerous defects or problems that can arise to cause an attack on or loss of the title to your property. Some of these include hidden defects not found by even the most careful search of the public records (the title search). Hidden risks can cause a total loss of your investment or heavy legal expenses in the defense of an attack on the title.
Some title problems may show up months or years after the original purchase of the property. A few examples of matters that can cause loss of or an attack on a title are:
- False impersonation of the true owner of the property.
- Forged deeds, releases, wills and other documents.
- Instruments executed under invalid or expired power of attorney.
- Deeds by minors, aliens or persons of unsound mind.
- Deeds by persons supposedly single, but in fact married.
- Liens for unpaid estate, inheritance, income or gift taxes.
- Fraud.
- Misinterpretation of wills.
- Undisclosed or missing heirs.
- Failure to comply with the law.
- Errors in indexing of public records or mistakes in recording legal documents.
- Liens for unpaid taxes, including estate, inheritance or gift taxes.
- Invalid deeds delivered after the death of the grantor.
- Unrecorded easements giving one party the right to enter another party's property.
Coverage against such hidden defects is provided to the insured by the title insurance policy.
What types of policies are available to me as a homeowner?
For the average property owner, there are two difference types of title insurance policies that you need to be aware of:
Lender's Title Insurance Policy
Since most property owners mortgage or borrow money at the time of purchase or during ownership, the lender can be expected to request protection of its investment against loss. Lenders know that many things can cause loss of title or that expenses are incurred while defending an attack. They insist upon a Lender's Title Insurance Policy to protect their stockholders' and investors' investment in your property.
Owner's Title Insurance Policy
An Owner's Title Insurance Policy protects your investment (equity) as the buyer or owner of the property. As the owner, you should want to have the same assurance as the lender that the investment you have made cannot be lost because of a problem or defect with the title.
If my lender is getting title insurance, why do I also need a policy? Aren't we both covered under its policy?
An Owner's Title Policy insures the purchaser that he or she owns the property subject to listed exceptions. A Lender's Title Policy insures the lender that the lien they hold is a valid lien against the property. The Lender's Policy protects the lender's interest only so long as the loan is outstanding and only in the amount of the balance of the loan at any given time. The Owner's Policy protects you up to the face amount of the policy during your ownership and after you have sold the property if you have warranted the property to your subsequent buyer. The policies perform different functions; therefore, it is not possible for one policy to cover both the purchaser and the lender.
How does the title insurance protect against hidden risks and defects?
Title insurance defends you in a lawsuit attacking your title and either corrects the title problem or pays the insured's losses up to the face amount of the policy. The policy also protects you after you sell the property for defects occurring prior to your ownership that cause a loss to a purchaser if the title was warranted by you.
How long am I covered by this policy?
An owner's title policy insures you for as long as you and your heirs remain in ownership, or have a liability by virtue of warranties to title given by you to a purchaser. A Lender's title policy protects the lender until the loan is paid off.
As opposed to other types of insurance, the premium for a title policy is paid at the time the policy(ies) is/are issued and is good for the life of the policy. The premium is based on the amount of the sale price and/or loan insured. The premium is paid only once; it is not paid on an annual basis.
Who establishes the rates to be charged for title insurance and the forms to be used?
In Tennessee, title insurance premiums are filed with and regulated by the Tennessee Department of Insurance who regulates the activities of title insurers. Rates are fixed and the same department establishes the forms used. The amount and type of coverage provided determine title Insurance Premiums. Unlike other insurance premiums, the title insurance premium is paid only once, as the policy is effective for so long as title or "ownership" remains in the name of the insured or his/its heirs or devises/assigns.