Title Insurance Basics

Title insurance is something that virtually all property owners pay for, yet many people have little understanding of the value of what they are receiving. When title insurance is purchased by a property owner, the insurer guarantees that the owner has clear title to the property, free of other claims or encumbrances that could prevent the owner from selling the property or getting the best price for it when it is sold. Title insurance evolved as a way to protect land purchasers from unscrupulous sellers and to encourage the efficient transfer of property ownership.

Title insurance protects property buyers from sellers who try to sell land to more than one purchaser, thus leaving the purchasers to fight over who is the bona fide owner of the land. Title insurance also ensures that the property has no encumbrances or impediments to ownership interests, such as a neighbor's walkway or fence that encroaches on the property, and it ensures that there are no liens on the property, such as a mechanic's lien for work performed on the property but not paid for by the seller. Any of the above instances could reduce the value of the property or force the owner to spend money in order to "cure" the defects.

How It Works
When someone purchases real property, the title insurance company carefully reviews the records of title to the property by doing what is called a "title search." If the title search reveals any defects to the title, such as those mentioned previously, the seller will be required to cure those defects as a condition of closing the sale. Once any defects are cured, the purchaser will receive clear title to the property.

The title insurance company will also review the current land survey, which must be provided by the seller, and will ensure that no encumbrances are revealed by the survey, such as a fence or wall encroachment that reduces the size of your property. If an encumbrance does exist, the seller may be forced to reduce the price of the property due to the land's reduced value. On the other hand, if an encumbrance existed at the time that the seller originally purchased the property and the title insurer did not include it as an exception to its policy, then the seller's title insurance would cover any costs expended by the seller to cure the defect.

There are certain encroachments or easements on the land that are necessary for the use of the land. For instance, there are public utility easements that involve the use of the land for such items as gas lines, electrical lines, telephone lines, cable lines, sewers, or any other items that are necessary for the common good of all landowners. These types of easements do not reduce the value of the land, and title insurance companies will readily insure over such encroachments. In fact, these items may add value to the land by providing valuable services.

In the final analysis, title insurance gives you and, in the case of mortgaged property, your mortgage company or bank the assurance that you own your property free and clear and that its value is not reduced by some unknown right or interest of a third party.

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