As recently as this summer, some questioned the use of title insurance, suggesting it was an unnecessary expense when purchasing a home. Yet over the last few months, reports that paperwork in the foreclosure process could be invalid have raised questions about the validity of title to foreclosed properties and sparked fear that homeowners who purchased in good faith could lose their homes.
Today more than ever, we remind consumers that in order to have peace of mind, they should purchase an owner’s title insurance policy whenever they buy a home. This is especially true when buying a property that has been foreclosed. Anyone who purchases an owner’s title insurance policy when acquiring a foreclosed property will be protected if ownership issues arise due to a lender’s or mortgage servicer’s foreclosure documentation practices. An owner’s policy provides assurance that your title insurer will stand behind you if a covered title problem arises after you buy your home.
The bottom line: your title insurer will be there to pay valid claims and cover the costs of defending an attack on your title. Title insurance compensates and provides legal representation to real estate owners and lenders against any financial loss that might arise because of undiscovered liens, encumbrances or defects in the title to the property. These defects can result in total losses, where a defective foreclosure or forgery means legal title is not actually conveyed, or they can result in partial losses where a neighbor’s garage or fence encroaches on the insured property.
There are two basic types of title insurance policies. A lender’s policy, usually based on the amount of the loan, protects only the lender’s interests in the property should a problem with the title arise. Similarly, an owner’s policy, usually based on the home’s total purchase price, protects the homebuyer’s interests in the property should a problem with the title arise. An owner’s policy will provide protection against ownership challenges, errors or omissions in deeds, mistakes in examining records, missed liens, forgery and undisclosed heirs, among other things.
Unlike most other types of insurance, you pay a one-time premium at the time of your home purchase for coverage that continues as long as you or your heirs own the property. In Virginia, the cost of an owner’s policy is marginal when a lender’s policy is also being issued. This “simultaneous issue” discount means you do not pay full premium for both owner’s and lender’s policies issued together.
In all transactions, a search of public land records affecting the property should be conducted to make sure a homeowner has clear title to their property. The title agent and your attorney will scrutinize prior deeds or mortgages, court judgments, delinquent taxes and child and spousal support liens, covenants, conditions and restrictions, general encumbrances, and utility or other kinds of easements recorded or filed in the public land records. Steps may be taken to cure title issues that are discovered. According to the American Land Title Association, the title insurance industry cures defects in public records in more than 35 percent of all transactions.
Some examples of documents that can present unexpected title issues include:
– Deeds, wills and trusts that contain improper wording or incorrect names;
– Outstanding mortgages, judgments, unpaid taxes or other liens against the property;
– Easements that allow construction of a roads or utility lines;
– Pending legal actions against property that could affect purchasers; or
– Incorrect notary acknowledgements.
The majority of the one-time title insurance premium covers the cost to discover, identify and repair issues caused by events that occurred in the past. Because of these preventive measures, title insurance is fundamentally different from all other forms of insurance, which charge annual premiums to provide insurance protection for future events. The curative work performed by title agents minimizes the fear, disruption and distress that title claims have on homeowners.
One way to compare title insurance to other kinds of insurance is to imagine if a homeowner’s insurance agent came into a home and inspected all of the wiring at no additional cost to the owner. The agent then repaired any and all faulty or frayed wiring at no cost and guaranteed that none of the wiring that was repaired or any wiring that the agent could not see, would cause a fire. Finally, the agent charged a one-time fee for the inspection, repairs and guarantee that would be in effect as long as you or your heirs owned the property. The title industry finds the faulty wiring, fixes the faulty wiring and charges a one-time premium to guarantee its work, based on the value of the property.
When property changes hands in the United States, it generally is through a private document that is recorded in the public record. No matter the type of purchase, but especially a foreclosure, it is important that all documentation be in order. Commitment to accuracy and quality assurance is the foundation of title insurance. This commitment ensures fewer problems for homeowners and provides assurance they won’t lose their investment.
Consumers have a choice shopping for the best price and in selecting the provider of their title insurance related services. Asking questions can save you money the next time you buy or refinance a home. When refinancing with your existing lender, ask for a copy of your original lender’s title insurance policy. When purchasing a home, ask your real estate agent or the home seller for a copy of any existing owner’s title insurance policy written within the previous ten years. When placing a title order, provide your settlement agent or lawyer with a complete, legible copy of any prior title policies. Finally, ask your settlement agent or lawyer if any discounted title insurance rates are available based on your situation.
The American Land Title Association helps educate consumers about title insurance so that they can better understand their choices and make informed decisions. Homebuyers, regulators and legislators are encouraged to check out the website, www.homeclosing101.org, to learn more about title insurance and the closing process. This article is adapted from one developed by ALTA.
MartinWren, P.C. attorney Lewis A. Martin, III practices real property law and estate administration law in the firm’s Charlottesville office. For more information regarding property foreclosures and other real estate issues, please call Lewis at 434-817-3100 or email him at firstname.lastname@example.org. With offices in Charlottesville and Harrisonburg, Virginia, MartinWren, P.C. is a dynamic law firm offering legal services to individuals and small and large businesses across the Commonwealth. MartinWren, P.C. represents clients in diverse practice areas: Business, Corporate & Tax Law; Estate Planning & Administration; Personal Injury; Intellectual Property and Technology Law; Healthcare Law; Commercial & Residential Real Estate; Civil and Commercial Litigation; Startups and Emerging Companies; Family Law & Adoption; and Nonprofit Organization Law. To learn more about MartinWren, please visit www.martinwrenlaw.com.