TITLE INSURANCE – Securing your home requires more than just new locks

By C. Lane Wood

Imagine accepting a deed to your dream home only to find out later that someone else has a claim to your property – a legal claim that puts your ownership in question.

Don’t risk this happening to you. There are steps you can take to uncover potential claims before you close and protect you against future claims.

With all that’s involved in buying a home, you’d think that by the time the last form is signed there would be no doubt that you own the home. Unfortunately, this is not always the case. That’s why you should not close on a house without having your attorney, or someone approved by your attorney, conduct a thorough title examination of the property to determine who really owns it.

In real estate, “title” refers to the rights of ownership and possession of a particular property. Before title can be sold to someone else, it must be “marketable” – free and clear of liens or other title defects that would be unacceptable to a prudent, educated buyer in the reasonable course of business.

To ensure marketable title, your real estate attorney can conduct a title search – an examination of public records concerning the property you intend to buy. This generally includes mapping a chain of title to determine if the present owner received valid title from the prior owner, and the prior owner received valid title from that prior owner, and on down the line for a certain number of years. A thorough title search should uncover any identifiable problems (defects) with the title.

Not all title defects are part of public record. Such “hidden” defects may not be found in the course of a title search, no matter how thorough the examination. This is where title insurance comes in. Title insurance protects you against problems with the title that you didn’t know about when you bought the home. If a problem is discovered, your title insurer pays the costs to defend your ownership in court, to fix the problem, or covers your financial loss if the defects cannot be fixed.

There are two types of title insurance. If you get a loan, your lender will require you to purchase a lender’s title insurance policy. This protects them, but it does not protect you. To protect your interests, you will need a separate owner’s title insurance policy.

Examples of Discoverable Defects:
□ Mortgages
□ Real property taxes
□ Court Judgments
□ Utility easements

Examples of “Hidden” Defects:
□ Forged deeds
□ Impersonation of another by identity theft
□ Married seller who represents himself or herself as single
□ Construction liens
□ Incorrect legal description of property
□ Improperly probated will
□ Undisclosed heirs
□ Clerical errors at the courthouse
□ Deeds signed by minors or mentally incompetent persons
□ Confusion resulting from similar names

The title examination is your first line of defense for discoverable defects and the examination should be performed by a trained professional, such as a Florida Bar Board Certified Real Estate Attorney. Purchasing title insurance is your second line of defense for those “hidden” defects that the title examination did not reveal. It also protects against any other defects (even “discoverable” defects) not specifically listed in the exceptions from coverage under your title insurance policy. As a seller, your real estate attorney can help correct any defects that may arise, either by making a claim against your title insurance policy, or by taking the necessary action to clear the defect.

“Exceptions” To Your Title are Not Insured
As noted above, certain title matters cannot be eliminated and will be listed as exceptions to your title insurance policy. Exceptions are situations where the owner gives up control over an aspect of the property. For example, an easement that allows the utility company to bring its wires across your yard to the house could be an exception. If you object to an exception, you and the seller have a specified amount of time to come to a resolution. If the issues cannot be resolved, you may be able to get out of the purchase contract.

Your real estate attorney will help you understand any exceptions from the policy, and their ramifications and how to best deal with them.

The time to purchase an owner’s title insurance policy is when you close on a home. You should also consider from whom you purchase your insurance. A licensed title agent is not an attorney. While he or she can issue title insurance and prepare documents for closing, a licensed title agent cannot:
□ Negotiate contracts on your behalf
□ Give you legal advice
□ Explain the meaning of the documents you will be asked to sign at closing
□ Resolve title issues

A real estate attorney is trained in the complexities of real estate law and can examine your title and issue your title insurance policy for the same premium as charged by a title agent. A real estate attorney can also provide the other services listed above that a title agent cannot, and most attorneys provide these services at a nominal cost. In the end, the cost of closing through a real estate attorney is about the same as the cost using a title agent. Since buying a home is one of the most important purchases you will make in a lifetime, it just makes sense to use a real estate attorney.

Do I Need Additional Coverage?
You can supplement your standard owner’s policy through the purchase of special endorsements. Ask your real estate attorney to explain the benefits of these endorsements, and help you decide if you need this additional coverage.

How Much Does It Cost?
The premium for title insurance is paid only once, at closing; but the protection lasts forever, even after you sell the home. The cost is based upon the purchase price and can range from a few hundred to over a thousand dollars. Your owner’s policy will be issued in an amount equal to the purchase price of the property or, in some circumstances, its market value.

If you are selling your home, you probably already have an owner’s title insurance policy in place. However, it is possible that a hidden defect could still be uncovered by the buyer’s agent when you try to sell your home. If this happens, you will want to work with your real estate attorney to address these problems. As the seller, it is your responsibility to deliver a marketable title to the buyer.

If you have an owner’s title insurance policy, any defects that are difficult to resolve will be reported to your title insurer. Be aware that this may delay the closing until the matters are corrected. However, if you do not have an owner’s title policy, you will be required to personally cover the cost of correcting these problems.

Who Pays for Title Insurance?
In some areas, such as Lee County, it is custom for the seller to obtain the title search and pay the premium for the buyer’s title policy (also known as the “owner’s policy”), but in other areas, such as Collier County, it is customary for the buyer to pay for these services. Your real estate attorney can tell you what the custom is in your particular area, no matter where that may be. Keep in mind, however, the issue of responsibility for payment, along with many others, is always theoretically negotiable, and should be spelled out in the contract. And no matter who pays for the policy, the reasons for having a real estate lawyer examine the title and issue the policy still apply.

How Does It Work?
After performing a title search and examination, your attorney will issue a title insurance “commitment” for the transaction. The commitment will identify those matters which will be shown as exceptions on the final policy unless action is taken to eliminate them. Your real estate attorney will then take all steps necessary to eliminate as many of the exceptions as possible and help you obtain your title insurance policy. As noted before, some exceptions, such as condominium or homeowners association rights and responsibilities or utility service easements may not be able to be eliminated.

Potential Problems
In many cases, the commitment requirements are routine and the scheduled exceptions are most commonly acknowledged as not affecting the marketability of title. However, sometimes they can pose problems which the seller is responsible for correcting. A real estate attorney is best equipped to advise you on how to deal with them.

The author acknowledges the assistance of Attorneys Title Fund Services in the preparation of this article.

This Article does not constitute legal advice and may not be relied upon as such.  Each individual’s facts and circumstances are different. If you have any questions regarding your particular situation, please consult with legal counsel.

C. Lane Wood is a Board Certified Specialist in Real Estate Law and handles all facets of residential and commercial real estate development and financing.  As a Board Certified Specialist in Real Estate Law, Mr. Wood handles all facets of residential and commercial real estate development and finance.  He has practiced law in Naples for over 15 years and carries an “AV” “Preeminent” rating from LexisNexis and Martindale-Hubbell.  He has also been listed in Florida Best Lawyers.  Whether your legal matter involves a routine purchase and sale or refinance transaction, a sophisticated multi-state or multi party commercial contract, or perhaps the development of a small or large scale residential or commercial planned unit project, Mr. Wood has the skill set and experience necessary to advise you properly every step of the way.

Salvatori, Wood, Buckel, Carmichael & Lottes
239.552.4100 | www.swbcl.com

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