The home buying process has a few fail-safes in place to make sure the home/property that you are about to purchase is owned by the person who is about to sell it to you.
Title insurance, Title report, and Title search are all components of the home buying and closing process. Although each one is different, they come together to form a larger whole.
Here’s everything you need to know about Title insurance, Title report, and Title search and how they all work together.
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 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.
FACT: Title companies tend to find problems in about 25% of residential real estate transactions. For the most part, the current owners of the property may not even know or realize that there is a problem with their title.
This is where title insurance is extremely important. Title insurance is a layer of protection for the buyer and lender (if applicable) in case there are any issues with the title or should some other party appear to have a stake or claim on the property’s title.
Benefits of Title Insurance
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.
The title report is the final report that comes out of the title search and examination process. All the information your title company uncovers during the search and examination gets printed out in the title report.
The title report is going to contain incredibly valuable information to determine what’s needed to clear the title. Reading and understanding its contents is a must if you want the detailed information on the property you are thinking about buying. The title report includes several different sections, each of which shines a different light on the status of the property.
At Nona Title, we have a Green Light Listing program where we run title and municipal lein search up front in order to get any potential issues worked out.
The sections of a title report often include:
- Property and Owner Information
- Legal Description
- Liens and Encumbrances
- Tax information
- Restrictions, historical rules, oversights
- Covenants, Conditions and Restrictions
For definitions on all of the above, check out of Real Estate Dictionary.
If you purchase a property based on a title report, you are basically assuming all liability and responsibility of defending the title if contested. This is where title insurance comes into play.
A title search is a search done by your title company. They search through the public records to figure out who owns the property, if there are any judgments against the owner and if there are any liens or encumbrances against the property. More than that, the title search helps confirm if the seller or owner of the property legally has the right to sell it to you. The title search can also reveal any potential issues that would make buying and owning the property more expensive for you, or possibly even cause you to lose the home or have to legally defend your rights to the home.
How Is a Title Search Conducted?
Performing a title search involves examining public records and looking for information on the property itself, as well as information on the current owner. A few places where a title company might look when performing a title search can include:
- The county tax assessor’s office
- The county property appraiser’s office
- The county court records
- The county public records
- Surveyor’s records
What Is the Goal of a Title Search?
One of the main goals of the search is to verify that the person who’s selling you the property owns it. The title search should also reveal if there are liens on the property that haven’t been discharged. A lien on a property means someone else or a company has a claim on it, either for the entire value of the property or just part of it. If the current or previous owner had some trouble with debt, the person or company they owed money to might have put a claim on their house. This can be for a water softener system etc.
If the ownership of the house transfers to them with the lien in place, they are likely to get stuck paying the original owner’s debts. A lien can also prevent the sale of the property from going through entirely.
Another important fact a title search can uncover is whether or not the current owner of the property is up-to-date on their property taxes.
Title Insurance vs. Title Report vs. Title Search
Title insurance, Title report, and Title search — can you have one without the other?
When you’re preparing to close on a property, it’s a good idea to think of Title insurance, Title report, and Title search as a chair with three legs. You can’t have title insurance without a title search and title report.
Let’s take a closer look at the differences and similarities between Title insurance, Title report, and Title search.
Differences Between Title Insurance, Title Search and Title Report
A title search is a process. Someone needs to perform a title search and examination. On the other hand, title reports and title insurance are both products that a title professional produces. Your title company produces the title report as a result of the title search and examination. You (or the seller) then purchase the title insurance to protect yourself against any possible claims on the property’s title.
How Does a Title Insurance, Title Search and Title Report Work Together?
Let’s say you’ve hired a title company to work with during the closing process. The company has completed the title search, examined the title and prepared the title report. Even if everything looks good, do not assume that you are in the clear because there weren’t any major concerns on the report or uncovered during the title search.
It’s important to remember that there are hidden issues that even a very detailed title search might not uncover. The former spouse who still has a claim to the property or a sibling claiming ownership because of probate are just a couple of examples. Another potential hidden problem might be a name mix-up or a forgery on the part of the previous owner or even a complete fraudster who doesn’t have any legitimate right to the property trying to cash out on the sale.
Purchasing a title insurance policy that protects you, the buyer. Not purchasing a title insurance policy leaves you vulnerable and liable to defend the title to the property. There’s no way to predict if there will be hidden problems with a property or what they might be. Remember the chair: not having a title insurance policy is like having a chair with just two legs: it’s not going to stand on its own.