Anyone
who has ever purchased a home or other real estate—especially if that purchase
was made with mortgage financing—has seen an item on the Closing Statement entitled
“title insurance.” Most buyers do not really understand or
appreciate what title insurance is, and why it is in their interests to have
it. Allow this blog post to provide a
simple explanation.
After a buyer has
contracted to purchase property, but before closing of that purchase and sale,
attorneys will search and review the Public Records to make sure the
seller has the right to convey title to that property, free and clear of all
claims or liens. If any claims (such as
mortgages) or liens (such as claims of unpaid contractors for work done to
improve the home) are properly recorded in the Public Records and identified by
this “title review,” valid claims and liens will have to be
paid at closing out of the seller’s proceeds, and the seller will be paid the
balance of the purchase price remaining after such payments. This process is designed to make sure that
the buyer gets good and marketable title to the property, free and clear of any
claims except claims made against the buyer’s own interest—such as any mortgage
the buyer uses to complete the purchase.
What would a buyer
do if the attorneys missed something in their title review? What options would a buyer have if a lien is
later claimed for work done for the seller, but that lien may not have been
adequately preserved or “perfected” according to
law? Defending a lawsuit over such
matters might be more expensive than paying the lien. Suing the attorneys who made the mistake by
failing to identify a valid claim might be another option. But, again, lawsuits can be time-consuming,
stressful and expensive. Even if the
buyer were ultimately to prevail, it might cost the buyer many thousands of
dollars to get to the point of winning a case in court. This is
the purpose of title insurance.
Like most other
insurable risks, it is common for buyers of real property to purchase insurance
covering the risk that some claim or lien, whether valid or perhaps even
invalid or frivolous, may be made against the buyer’s ownership interest in
that property. If a claim is made
against the property, the buyer has the right to file a claim against that
policy of title insurance; and the title insurer has the obligation to “take it
from there,” whether that means defending against a claim in court or paying a
valid claim so that it is released. If
the buyer purchased the property with mortgage financing, their lender required
title insurance for these reasons. The
lender wanted insurance protecting its sizeable loan to purchase the
property. The premium for the
“simultaneous issue” of an Owner’s Policy of title insurance is relatively
small, and the homebuyer is well advised to pay that premium to make sure there
is coverage for claims that might exceed the amount of the mortgage. The most important function of title
insurance is to provide legal protection of the buyer’s title to the asset he
or she is purchasing. An additional
benefit is the peace of mind it provides.
For more information and to search the entire Charlotte area MLS FREE, go to www.EricDorerRealEstate.com.
