Title Insurance protects consumers from financial loss and hardship related to unknown judgments and liens, forged transfers, inconsistencies within a property’s title or misapplication of fiduciary funds.
Title insurance is an exclusively American invention. Its purpose was well stated in the first advertisement for title insurance back in the late 1800s:
“This company insures the purchaser’s of real estate and mortgages against loss from defective titles, liens, and encumbrances. Through these facilities [the] transfer of real estate and real estate securities can be made more speedily and with greater security than heretobefore.” [circa 1876]
Protecting purchasers against loss is accomplished by the issuance of a title insurance policy, which states that if the status of the title to a parcel of real property is other than as represented, and if the insured suffers a loss as a result of title defect, the insurer will reimburse the insured for that loss and any related legal expenses, up to the face amount of the policy.
Title insurance differs significantly from other forms of insurance. While the functions of most other forms of insurance is risk assumption through the pooling of risks for losses arising out of unforeseen future events (such as death or accidents), the primary purpose of title insurance is to eliminate risks and prevent losses caused by defects in title arising out of events that have happened in the past. To achieve this goal, title insurers perform an extensive search of the public records to determine whether there are any adverse claims to the subject real estate. Those claims are either eliminated prior to the issuance of a title policy or their existence is excepted from coverage.
The job of searching the public records to identify existing rights and interests is not an easy task. The title searcher or abstracter reviews the public records to find all aspects of title, which can be seen and recognized. From the title search, the title examiner produces an opinion of title, from which the Company will issue its insurance.
In many areas, the title to a property can be traced back to a royal grant, charter, or the United States government. In many areas, titles are not traced back that far; instead, local custom or title insurance company requirements dictate a shorter search.
There are few titles, if any, that have a perfect history from their source, or root, to the present day. Each transfer of ownership is a “link” in what is referred to as the “chain of title.” As each transaction or link takes place, there is a potential for a problem. Even if the entire chain of title appears to be in order, the chain is still subject to interpretation. When searching a title, what we are trying to determine are the various rights and interests that make up each link in the chain as it has passed from one owner to another.
A “title” is composed of three basic elements.
- Rights and interests that are disclosed in the public records or by physical inspection of the property, i.e., deeds, mortgages, leases, etc., parties in possession, utility easements, etc.
- Rights and interests that are not recorded but exist, i.e., limitations imposed by laws and statutes, etc.
- Rights and interests that are hidden, i.e., forgeries, secret marriages and unknown heirs.
Every title is made up of many different “rights” and “interests” that may be owned by different people. The “owners” of the property own the most valuable of the property’s rights and interests, but other people may also have rights to the property, such as easements for utilities or mortgages, etc.
Each title can be compared to sticks in a bundle. The rights and interests are represented by the sticks. The “owners” own what we call a “fee simple” title, that is, they have purchased the most vital and valuable sticks including rights of possession, use, occupancy, enjoyment, inheritance, etc. Also, within the bundle are sticks that may be owned by other parties. These are called encumbrances and may consist of easements, mortgages, liens, etc.
When a person purchases a parcel of real estate, it is not only the physical property itself that he or she acquires, but the sellers rights and interests, “the seller’s title,” in the property. It is essential for the prospective purchaser to know before the transaction takes place, precisely what rights or interests the seller can convey. The purchaser also needs to know who else may have rights or interest in the property, and about any encumbrances against the property that may affect the use or enjoyment of the land. The title search must cover all these rights and interests.
Title insurance issued by Old Republic Title (our underwriter) provides a broad range of benefits to the parties involved in a real estate transaction.
To the Purchaser of Real Estate…
The purchaser of real estate needs protection against serious financial loss due to a defect in the title to the property purchased. For a single, one-time premium, which is a modest amount in relationship to the value of the property, a buyer can receive the protection of a title insurance policy – a policy that is backed by the reserves and solvency of the Company. A title insurance policy will cover both claims arising out of title problems that could have been discovered in the public records, and those so-called “non-record” defects that could not be discovered in the record, even with the most complete search.
A title insurance policy will not only protect the insured owner, but also that person’s heirs for as long as they hold title to the property, and even after they sell by warranty deed. The Company will not only satisfy any valid claim made against the insured’s title, but it will pay for the costs and legal expenses of defending against a title claim.
To the Lender…
The overwhelming majority of mortgage loans made in the United States are made by persons who are acting in a fiduciary capacity – by savings and loan associations, savings banks, and commercial banks on behalf of their depositors, and by life insurance companies on behalf of their policyholders. Because they are lending other people’s money (other people’s savings or policyholder’s funds) these lenders must be concerned with the safety of their mortgage investments.
A policy of title insurance provides a mortgage lender with a high degree of safety against the loss of security as a result of a title problem. This protection remains in effect for as long as the mortgage remains unsatisfied.
Old Republic Title also provides lenders with in-depth expertise on a wide variety of title related matters to facilitate the mortgage loan process.
To the Seller…
An owner of real property whose interest is insured by an owner’s title insurance policy has the assurance that the title will be marketable when selling the property. The title insurance policy protects the seller from financial damage if the seller’s title is rejected by a prospective purchaser. Also, when the seller conveys with “warranties,” the seller is still protected if the buyer sues because of a breach of those warranties.
To the Real Estate Attorney…
Title insurance enables the real estate attorney to provide the client with substantially greater protection than would be afforded by the attorney’s opinion alone. The attorney’s opinion is generally limited to recorded matters and the client can only recover from the attorney if the attorney is found to be negligent. (Remember the case of Watson v. Muirhead that prompted the creation of title insurance?)
To the Real Estate Broker…
The title insurance company and the real estate agent both seek to ensure that as many purchases as possible are closed to the satisfaction of all the principals in the transaction. From the broker’s standpoint, the efficient and safe transfer of title will result in client satisfaction, increased prestige, and continued business.
Apart from the security that title insurance offers, most brokers have experienced numerous instances in which title insurance personnel have enabled them to close transactions that otherwise would have been delayed. By helping to avoid delays, Old Republic Title is able to facilitate the job of the real estate broker and to minimize the inconveniences and costs to the homebuyer.
To the Home Builder…
By providing various title insurance services and information to the home builder, the title insurance industry can and does assist the builder in identifying and evaluating building and use restrictions, easements, etc., in removing title problems that may arise, and in facilitating prompt and needed disbursement of construction funds from the construction lender. All of these services ultimately rebound to the benefit of the buyers of newly constructed homes.
To the Community In General…
Apart from the unique benefits title insurance offers to particular parties interested in a real estate transaction, title insurance companies can and do offer considerable assistance to public officials through the use of their “title plants” – the data banks of reorganized and indexed public records that are maintained by the Company in many areas of the country.
Much of the information contained in title plants is not readily available from other sources. This fund of information about the date of recent sales, representative sale prices, ownerships, area maps, use restrictions, surrounding properties, and a host of other matters pertinent to proposed projects, has helped representatives from all levels of government save countless hours and taxpayer dollars. In addition, title plant people frequently help recording officers correct errors they discover in public indices and records.
When you buy or sell a home or property, it usually involves transferring large sums of money. To make sure the transfer of these funds, and the related documents, is handled in a secure manner, you need a trusted escrow holder.
As a knowledgeable, neutral third party, the escrow holder makes sure the conditions of the transaction are met before property and money changes hands. The process of escrow was developed to protect the buyer, seller and lender.
As an escrow holder, Old Republic Title carries out the instructions of the parties involved in real estate transactions, which includes:
Receiving the necessary funds and documents
Completing or obtaining required forms
Handling the final delivery of funds, documents and statements to the proper parties
Privacy and security are high priorities at Nona Title and our underwriter, Old Republic Title. We work with title agents, lenders, real estate professionals and consumers to adhere to industry cybersecurity standards, regulations and legislation, which protect sensitive data and the real estate settlement transaction itself.
Identity theft, financial fraud and other cyber-crimes are on the rise in the financial services and insurance industries. Settlement services transactions have become a target for fraudsters, and these types of cyber-crimes continue to grow. To reduce the risk of cyberfraud, everyone involved in a real estate transaction needs to know the threats and be armed with knowledge to combat them.
Know the Threats
When fraudsters become interested in a transaction, they’re looking to gain unauthorized access to nonpublic personal information (NPI) or use business email compromise (BEC) to perform fraud.
NPI is personally identifiable financial information provided by a consumer to a financial institution resulting from any transaction with the consumer or any service performed for the consumer. In the hands of fraudsters, this information is valuable and can be sold or used to commit cyber-crime.
BEC is a process fraudsters use to access emails containing NPI or conduct cyber-crime. This could lead to wire transfer fraud, where a transaction participant wires funds to an unauthorized person. Organized crime groups typically follow a process such as this:
Identify targets within the transaction
Reach out to the targets with phishing emails, telephone calls and, in some cases, in-person visits to collect useful information such as transaction dates, accounts, participants, amounts, etc.
Exchange information with the targets and participants
Change wire transfer instructions to have funds sent to an account controlled by the organized crime group
Protecting the Settlement Services Transaction
Each participant in a transaction is responsible for ensuring fraudsters don’t collect data, interrupt or insert themselves into a transaction. These are some ways parties to a transaction can help prevent interference:
Know the transaction process from start to finish
Use a contact log created at the beginning of the transaction to reference contact information for the title agent, lender, real estate broker or agent, attorney, seller and buyer
Keep a level head and eliminate urgency
Ask questions if you don’t understand something or if you feel uncomfortable
Scrutinize emails that contain or collect NPI or request that funds be transferred
Verify the authenticity of any request to wire or send money
Do not use phone numbers and links within the email; use the contact log set up at the beginning of the transaction
Avoid using public wi-fi even if the wi-fi is protected by passwords
If you can’t avoid public wi-fi, utilize a virtual private network (VPN) to encrypt data
Keep your computers, mobile devices and applications patched and updated with the latest versions or releases to help close security vulnerabilities
Verify fund transfers immediately
Whatever your role in the real estate settlement services transaction process, stay vigilant to help reduce the risk of cyber-crime.
Use the following tips to help protect transactions:
Real Estate Brokers or Realtors
Avoid using free email services to conduct business
Use secure email whenever possible
Use two-factor authentication for email
Transfer files and data using encryption
Don’t store data that’s not required by regulation or legislation
Change passwords on a periodic basis
Educate customers on BEC, wire transfer fraud and the settlement services process
Learn about the settlement services process and what you should expect
Confirm the authenticity of all communications
Only transfer NPI in an encrypted format (If you aren’t sure if the method is encrypted, question the requestor)
Understand wire transfer fraud
Scrutinize wire transfer instructions, and don’t accept changes in instructions unless you’re 100% sure of the authenticity of the change
Nona Title & Old Republic Title are committed to working with all participants of the settlement services transaction to help ensure that information is kept as secure as possible. By knowing the threats, asking questions and practicing good security hygiene, we can work together to protect transactions.
Information adapted from Old Republic Title Company