First, the word “Title” is a collective term for all of your legal rights to own, use and dispose of land. Title includes all previous ownership, uses and transfers. To legally transfer real estate property, a title search must be performed, and, in most cases, the title must be found free of any circumstances that could endanger your right of ownership. Title insurance protect against the possibility of future loss should your legal rights to your property be challenged.
There are two types of Title Insurance: A lender’s policy and an owner’s policy. The lender’s policy protects the lender’s interest in the property for the amount of the mortgage loan. An owner’s policy protects the homebuyer for the full property value.
What Does An Owner’s Policy Cover?
An owner’s policy protects your interest in the property against such hidden hazards as:
- Mistakes in the recording of legal documents
- Forged deeds, releases or wills
- Undisclosed or missing heirs, including spouses
- Deeds by persons of unsound mind
- Deeds by minors
- Deeds executed under an invalid or expired power of attorney
- Liens for unpaid taxes
For a one-time premium paid during the closing process, your title insurer assumes responsibility for all legal expenses to defend the title to your property if ever challenged. If the defense is unsuccessful, you are reimbursed for any reduction in the value of the land. It is an important layer of security and protection.
What Is A Title Search?
A title search is a detailed examination of all available public records on a property to verify the seller’s right to transfer ownership, and to discover any potential challenges in the closing and ownership process. A title search should reveal unpaid taxes, unsatisfied mortgages, judgments against the seller, and restrictions limiting the use of the land. However, even the most diligent search may fail to reveal some hidden hazards, such as those mentioned above that Title Insurance protects from.
How Long Does Title Insurance Coverage Last?
A lender’s policy lasts until the mortgage is paid in full. An owner’s policy remains in force as long as you or your heirs have an interest in the property. If challenges to title arise after the property has passed to your heirs, the title insurance company would defend the title for them just as it would for you.
What Is Escrow?
As a buyer or seller, you want to be certain all conditions of your sale have been met prior to property and money changing hands. The technical definition of an escrow is “a transaction where one party engages in the sale, transfer, or lease of real or personal property with another person who delivers a written instrument, money or other items of value to a neutral third person, called an escrow agent”. The escrow agent holds the money or items for disbursement upon the performance of a specified condition.
Simply stated, the escrow agent impartially carries out the written instructions given by the principals. This includes receiving funds and documents necessary to comply with those instructions, completing or obtaining required forms and handling final delivery of all items to the proper parties upon successfully completion of the escrow.
The escrow agent must be provided with the necessary information to close the transaction. This may include loan documents, tax statements, fire and other insurance policies, terms of sale and any financing obtained by buyer, and requests for various services to be paid out of the escrow funds.
If the transaction is dependent on arranging new financing, it is the buyer’s responsibility to make the necessary arrangements. Documentation of the new loan agreement must be in the hands of the escrow agent before the transfer of property can take place. When all instructions in the escrow have been completed, the closing can take place. At this time, signatures are obtained by all parties, all outstanding funds are collected, and fees such as title insurance premiums, real estate commissions, inspection charges, etc. are paid. Title to the property is then transferred under the terms of the escrow instructions and the appropriate title insurance policies are issued.