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Understanding Title

Title to Property

  • Good title is the exclusive right to ownership and possession of property.
  • It is possible that someone other than the owner has a legal/superior right to the possession of the property (i.e. tenant, contract for deed, lease purchase option, party in possession).

Title Insurance

  • Title insurance is similar to other types of insurance.
  • Unlike other types of insurance, title insurance protects against loss due to events that took place in the past.
  • Specifically, title insurance protects the buyer against loss resulting from previously unreported or undiscovered title defects.

Why you need Title Insurance

  • If you suffer a loss due to a title defect, the insurer will indemnify you for a loss up to the face amount of the policy and any related legal expenses.
  • If you improve the property and then lose it all, you cannot recover anything above the policy/purchase amount.
  • If buying a property for $200,000 and building a $1,000,000 structure, you want to increase your coverage to the ARV when closing or shortly thereafter.

Two types of policies:

  • Owner policy: provides for coverage to the owner.
  • Lender policy: provides for coverage to the lender.

How Title Insurance Protects You

  • Forged deeds, mortgages, satisfactions or releases.
  • Deed from entity with unauthorized signer.
  • Defect in chain of title.
  • Adverse possession claims.
  • Undiscovered liens.
  • Liens recorded shortly before closing.
  • Incorrect heir.
  • Claims by spouses.
  • Incorrect releases of prior liens/claims.
  • Errors in conveyance documents.
  • Undisclosed easements.
  • Right of access/ingress/egress.
  • Boundary line encroachments.
  • Any and all adverse claims alleging a superior right to ownership or use.

Do I Need Title Insurance?

  • Attorney answer – Yes.
  • Title company owner answer – Yes.
  • If there is a lender requiring it – Yes.
  • Investor answer – depends.
    • It is a risk/benefit analysis.
    • If assuming a property and paying a small amount or none to seller, it may not be beneficial to get title insurance. Why protect $3,000 with a $2,000 insurance policy.
  • Bottom Line: If you have deceased parties in title, liens/judgments vs. seller, long period since last insurance policy was in place, or other factors indicating a higher risk, get title insurance.